Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
In the first chapter the writer, William B. Conerly, talks about the importance of a basic understanding in economics to be able to tell what is happening in the world of sales and finance. An understanding gives one an ability to see and understand the market, its increases and decreases in sales, revenue, profit, losses, and even recessions that comes with the evolution and development of the market. This understanding will help anyone make better business and investment choices than someone without the same basic understanding of economics, as this understanding help you form a more accurate vision of the future.
In chapter 2. Cycles in Your Sector of the Economy, William B. Conerly talks about the cycles that the majority of businesses goes through. How they have upswings, downswings, and sometimes a recession. Conerly also touched upon the importance of understanding the concept of cycles. Compared to cycles in physics, where the ups and downs occur with a frequency, the economic cycles are a lot more “free” and do not follow regular periods. As far as the recessions and their occurrence, Conerly said that the probability of a recession remains fairly the same through out time. Though it should be mentioned that they do not occur on a fixed schedule, but occur with a difference in the amount of time in between them.
My favorite take away from chapter 3. How to Anticipate Recessions and Downturns was the “What Really Causes Recessions?”. Here Conerly talks about how knowledge that you need to understand the cause differ depending on what role one has within the industry. The cause for a recession differ from recession to recession but some occurrences seems to occur more frequently than others. What I thought was most fascinating was how intricate the cause of a recession could be. According to Conerly, a simple theory does not work very well as there are often more than one reason the industry hits a recession. Otherwise the industry would be too frail. The understanding of how all of these different actions and events happening in the world right now and how they effect each other to potentially cause something like a recession is what intrigued me the most from this chapter, and also this book.
According to Conerly, good business decisions require important information about inflation. There are several important facts about inflation that managers should be aware of including three types of inflation rates to use as economic indicators. First is the Consumer Price Index (CPI) to track the price of goods and services that consumers pay. Second is the Producer Price Index (PPI), to track the price of goods and services that producers pay. The third and final, measures of wage inflation to track a business’s costs that are labor-related.
Summing up Chapter 5 Planning for a Downturn: Venerability and Flexibility, a company that learns in its contingency planning that it has limited options for cutting expenses may spend a year adding flexibility wherever it can. This shows how important it is to start planning ahead of time since simple budget cuts may not be enough to keep a company running during a recession. Recessions are part of running a business therefore you can not simply ignore them. If a company chooses to not plan for a recession there options for what they can do will be much more limited and it will take away flexibility from a company.
In Chapter 6 The Early warning System: Radar for Business, Conorly spoke about what one needed to manage through the business cycles. These different areas was macroeconomic warning signals, end-user information, consumer sales forecasts, and critical costs.
The macroeconomic signals are build up by three indicators would be GDP, inflation, and employment figures. When forecasting macroeconomics you should always be skeptical about the news and information you gather. A lot of the news are made to look extra for consumers.
Even though the end users do not have to be the actual consumers the data from them are still relevant for your business. If you cannot retrieve any good data from your business you will have to use competitors data instead. This data is often very specific to each industry.
For the consumer sales forecasts, it should include a business current sales reports that always include a “drill-down” of major surprises. Products and regional breakdowns must be used when new products or territories are added. Pipeline forecasts are useful for companies making large one-time-only sales. Sales forecasts should be developed in consultation with customers for ongoing sales.
For the last part, critical costs, one should always put costs in the early warning system if your company’s expenses are dominated by one or a few major items subject to large price swings.
My biggest take-away from this chapter was the steps to a recession, even though they are not applicable to the company I presented on. The three steps that Conorly presented in his book was the easy, moderate, and survival step. The easy step is used in the beginning of the early warning system going off. Is supposed to limit new hires to vital positions, reduce or eliminate capital spending plans, monitor inventories closely, and set up credit lines if possible. The moderate step is the next step after easy steps. Takes similar steps to easy steps but one step further. The managers should review employment, capital spending, and financing. They should also keep lenders fully apprised of conditions. Finaly, the survival step is the drastic steps a business needs to do to save their businesses. Capital spending needs to stop and assets sales need to be considered. Employment needs to be cut down as much as possible. sales personnel needs to be kept but to a minimal level. Then they also have to implement the steps that were mentioned earlier but another step further.
In chapter 8 Foreign Economic Cycles, Conorly spoke about topics such as monetary policy around the world, foreign exchange risk, and managing through the foreign business cycle. Monetary policy is the actions a country takes to handle its money. The underlying attitude towards the role of the monetary policy varies between each country. Though, in a lot of them the monetary policy serves the short-run political interest of the country. Foreign exchange rate is a big factor in the risk that companies that conduct their business in other countries faces. Profits can be diluted by the exchange rate and can lead to company losses. At the same time, it can yield a bigger profit for the company. As far as managing through the foreign business cycles, it all depends on how the business is conducted in the country will change how the cycle affect the business itself. If the goods is only produced there the business will not be affected the same in a recession compared to if the business sold their goods in that country. The recession strategy for the business that only produce their goods in that country should look for local suppliers to use them in case of a possible downturn in the other country. While the business that conduct their business in the other country should plan their recession strategy in the same as they plan it for their other countries. Overall, the economic fluctuations are different from every country, especially in countries less developed. The actions needed to be taken are wider than the ones needed in America. Every business vary when it comes down to how they should handle their business and contingency plans.
Although a regional economic cycle is not perfectly synchronized with its national counterpart, it tends to move up and down with the national economy. In addition to the broader national economy, two other factors influence a regional economy: the national cycle of its most important industries and its internal growth cycle associated with construction swings. There are two different perspectives to consider in analyzing a regional economy: when a company sells into a distinct local market and when a company primarily produces in a local market and sells into a national or global market. The national cycle impacts the state differently depending on how similar their economy is to the nation itself. The greatest effect on a region is the national economy itself. The composition of a region’s output, in conjunction with the composition of national economy growth, is the next greatest factor on a region’s economic performance.
In chapter 10 Industry Cycles: Be Prepared for Trouble in Your Sector of the Economy, Conorly spoke about what elements make a capital-intensive industries prone to overbuilding. These three elements are high overhead, long lead time to put new capacity in place, and low rates of depreciation.
The early warning systems for a industry that is capital-intensive is fairly straightforward. They need a way to measure new capacity coming online in its industry and an actual timeline. This timeline need to include all important data for the industry, an example of this would be when something is ordered. That way you would be able to track competitors movement.
To counteract this high volatility, a manager should stop adding new capacity when prices rise and competitors announce new expansion plans. They should stock away cash and wait for the industry’s over-expansion to play out. When writers gather up all the bad news at the bottom of the market, they can pick up new capacity as troubled competitors offer up equipment and facilities at discounts.
Overall, they should not move too quickly and wait for real distress by monitoring the financial conditions of weaker competitors within their industry.