Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
My biggest takeaway from the first chapter was how while the art of economics can led some extremely accurate predictions, but it is important to remember that they are still predictions. While these predictions are often very accurate, they are not exact and there is a first time for everything. This is why it is important to create multiple forecasts to increase the accuracy of the forecast, but to also remember that they are never going to be exact. This is forecasts should be looked at with a broad prospective.
While it is important to keep an eye on the overall health of the economy, every industry has its own microeconomy that reacts differently to different economic factors. It is important to know how your industry leads or follows the national economy, as well as how susceptible your industry is to national business cycles. Keeping an eye on your customers’ economic situation is another great way of anticipating changes in a specific industry’s business cycle. Understanding the timing and nuances of your industry’s role in the business cycle will led to a competitive edge over competitors.
There are a plethora of different approaches and strategies when it comes to anticipating a recession or downturn. In order to anticipate a recession or downturn it is essential to evaluate different economic indicators. These indicators range from a GDP decline to the consumer confidence report and credit crunches. While there is always going to be an issue somewhere in the economy it is important to look at the big picture and how an issue may or may not snowball the rest of the economy. Certain economic indicators have more of an impact than others. For examples a credit crunch will hurt almost every sector of the economy because institutions will not be able to get credit lines to continue expansion.
In order to properly get a firm understanding of potential recession triggers and profit squeezes, it is extremely important to understand the basic drivers of the federal reserve policy. This policy is based around a commitment to lower inflation rates, and to be preemptive with their action in fighting inflation with the assumption that their policy will take effect with a time lag. While the federal reserve works their hardest to realize these goals it is often easier said than done. With this being said an early move by the federal reserve to combat inflation could be a warning sign of anticipated inflation. ## Ch5 Planning for a Downturn: Venerability and Flexibility The most important part when planning for a recession is realizing how fragile enterprises are. This is why it is important to use extreme pessimism and caution when evaluating a plan for a downturn. This extreme caution should be used to create a vulnerability assessment to see how fragile their enterprise is. After getting a more clear understanding of the enterprise’s level of vulnerability the next step is to sketch out a contingency plan. This plan should set in place a plan for what the enterprise is going to do during different types of downturns.
When setting up an early warning system it is essential to understand that you are most likely not going to be 100% right. It is important to realize when to realize you’re early warning systems are wrong and adjust to the newaunces of this business cycle. The best way to do this is to institute a reevaluation of your early warning systems at least once a month, although the more often the better. When looking for indicators for your early warning system it is a great idea to follow those who study the data more closely, such as those at the federal reserve and running financial institutions.
Managing through a business cycle requires different levels of care and actions through different point throughout the business cycle. During a downturn survival needs to be the enterprises top priority. The first step is to cut capital spending as much as possible, and even considering asset sales if the capital if needed. The next step is to freeze hiring in order in make it as easy as possible to pay the remaining staff. If needed it may be time to move to laying off exsiting employees, of those marketing should be the first to go and sales staff should be the last. Once a company is able to make it through a downturn, it is important to rebound as fast as possible as assets can be acquired at a lower cost to do the supply influx caused by other companies liquidating during the downturn.
While it is true that most foreign markets follow each other to some extent, others are much more volatile and unpredictable. These markets are often those of developing countries who might not have the governmental structure or diversity in commodities to harbor a stable market. This means than enterprise managers need to be extra careful when dealing with foreign markets as the risk is much higher, although this usual also means higher profit margins. The best way to deal with this is to diversify across as many foreign markets as possible, this greatly minimizes the risk associated with foreign markets while still leaving the door open to greater profits than with what is domestically possible.
Every enterprise no matter the size will need to do their best in order to keep up with not only the national economy and business cycles but regional ones as well. If a company is large enough to operate nationally, it needs to have different regional managers in charge of keeping an eye on and managing through each local business cycle. This should be done with the goal of not only identifying threats specific to the region but regional opportunities as well. this can be done by creating a regional specific early warning system as well as contingency planes for each region.
Similar to how different regions require different levels of care and action. Each industry has its own micro economy that has its own niches and quirks. It is important to fully understand not just the national or regional economy, but the industry in specific. Without proper understanding on the industries economy, you might be caught in an economic downturn you were not expecting, even if the overall economy is in a bull run. This can catch an enterprise off guard and have them not prepaired enough to deal with the decrease in revenue.