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Let's finish up now in this module, our discussion of business cycle management
strategies for the firm's executive team by looking at two quite different topics.
The timing of the acquisitions and investitures by firms, and the hiring and
firing or laying off of employees over the course of the business cycle.
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From the perspective of good old-fashioned Management Strategy,
as it is taught in business schools around the world, there are many
compelling reasons why one company might seek to acquire another company.
For example, the acquisition target might have a large new customer base or
access to a new global, national, or regional market.
Alternatively, the acquisition target may own a complementary new
technology that would be very helpful to the business.
However, this is not the only reasons why one firm may seek to buy another,
target acquisition might be a crucial link in the acquiring firm's supply chain.
Or it might possess a key patent, or, and here's the most
Machiavellian of all motives, the acquisition target might
just be a key rival that the acquiring firm needs to eliminate,
so we can consolidate its market power and raise its prices.
Now here are key points, despite all these goods reasons for
one firm to acquire another.
It never makes any sense at all for your executive team to
impulsively make an acquisition if the stock price is too high,
no matter how compelling the underlying strategic reasons driving the process.
Nor does it make any sense to pay for any such acquisition, by accumulating
substantial amounts of debt at a time when interest rates are too high.
So, with these observations as background,
what do think is the best time over the course of the business cycle and
related stock and bond markets cycles for a firm to acquire another firm?
And what might be the best time for a firm to actually sell or
divest part of its company or a subsidiary to another firm?
Take a few minutes now to jot down your ideas before moving on.
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As a practical matter, the stock market tends to rise during and
in anticipation of economic expansions.
By the same token, the stock market tends to fall during and
in anticipation of economic recession.
So the rule of thumb here is that the best time to make
your acquisitions is often during economic slow downs, and
to engage to in any divestitures during robust economic expansions and
related bullish stock markets.
Of course, this business cycle Management Strategy is just
a variation on the well-known maxim, buy low and sell high.
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So what do you think the Human Resource Management Executive Team
should be doing during a recession?
Specifically, do you think it should be hiring or firing?
Please jot down your ideas before moving on.
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In the deep dark depths of a recession,
the last thing many companies want to do is counter secretly hire more people.
However, this can be a huge strategic mistake.
In fact, it is during a recession that the labor pool of the unemployed
will be at its deepest and wage pressures will have subsided.
It follows that a recession is a great time to cherry-pick the labor market, with
the goal of staffing the company with the most talented workers at bargain wages.
In this way, the company that engaged in strategic Human Resource Management
will be able to deploy a more highly skilled work force with lower
labor costs than its rivals when the new economic expansion begins.
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Okay, we've concluded our discussion of how executive teams might manage
their firms over a broad range of functions, and
during the course of the ups and downs of the business cycle.
It's now time to shift gears and shift over to a discussion of strategic
investing over the course of the business cycle, and
that's the topic of our next module.
Where we will work our way through the ins and outs,
and ups and downs of the markets for Stocks Bonds Gold and
Real Estate, the big four of global investing.
So take a rest now, when you are ready let's move on.
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Dr. Peter NavarroProfessor
