9. Economic Cycles (Boom-Bust Pendulum)
Business cycles are a set of irregular pendular cycles that can be of great interest to foresighted organizations, as they are often short-term enough to impact strategy. They produce irregular swings or “fluctuations” between economic growth and contraction, inflation and deflation, high and low interest rates (access to capital), high and low labor and resource availability, and other business conditions. The faster our economy goes, the shorter each phase of several (not all) of these cycles can become, and the faster the transition between phases. Such economic volatility can be particularly pronounced in smaller and emerging markets, in specific high-value, high-uncertainty industry sectors. The faster some macroeconomic and microeconomic cycles run, the more they fall within the three-to-ten year strategy horizon of our more foresighted businesses. Better-run organizations increasingly take advantage of predicting these cycles.
A good introduction to counter-cyclical business strategy is Peter Navarro’s The Well-Timed Strategy (2006). It often makes more competitive sense to execute contrarian strategy in a short macroeconomic cycle. For example, one can increase sales capacity but otherwise reduce capital spending and retire excess debt (or take on reasonable debt at good terms, if you have none) during times of easy credit and economic expansion, and save company cash and credit to do your nonsales hiring, R&D, and brand advertising during a recession, when you will typically get a much better return on your investment. There are more insights to be gained from economic cycles, but you can explore that rich literature for yourself. Joseph Schumpeter’s Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process (1939/2005), is a foundational work in this area. The Economic Cycle Research Institute is one of several business cycle forecasting communities.