|Prospering Through the Business Cycle
I'm sure you have heard the expression "A high tide floats all boats". Until recently, many companies
were floating on the high tide created by easy money, rapid growth, and low inflation. Under the right
conditions, even marginal organizations can appear very successful. They grow rapidly and book
reasonable profits. They open additional facilities to access new markets. They expand their products and
services to support their aggressive growth goals. These are the organizations that are often recognized
as examples of successful companies. However, the high tide they float on often obscures the weaknesses
just below the surface. They may be carrying more risk than they should. They may have stretched their
resources just short of the breaking point.
On the other hand, some companies are set up to be reasonably successful near the bottom of the economic
cycle. These organizations are often diversified to spread the risk of being tied to a single business sector.
They are often more conservative, with more cash and less leverage than their counterparts. They tend to have
fewer locations than their competitors and more revenue per location. Their growth is slower but their margins
are higher. Their strength in the bottom of the cycle allows them to make strategic acquisitions or win a
pricing battle with a major competitor. They hire to fill strategic positions when others are laying off
long-term employees. They leverage their relative strength to improve their position when
others are struggling to survive.
While there are lots of examples of both types of companies, there are few companies that have managed to prosper
throughout the business cycle. With longer business cycles, it is very easy to become complacent. The inclination
is to evaluate the strategy under the current conditions and give little thought to how well that strategy would
perform under other phases of the business cycle. This gives rise to the systemic risk we have heard so much
about in the last few years.
The greatest challenge that has emerged from the experience of the last couple of years is managing the business
to do well at any phase of the business cycle. This requires a combination of balance and flexibility. Organizations
must balance the desire to grow with the need to manage the related risks. Striking the balance is a continuous process
as conditions are always changing. As the pendulum swings, as it always does, the organization must exercise the
flexibility to take advantage of the opportunities presented by the next phase in the cycle.
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The Matrix Organization
|There is no such thing as the perfect organizational structure. Every organizational structure has strengths and weaknesses.
The matrix structure was developed years ago in an attempt to minimize the flaws that exist in more traditional structures. A matrix
structure is used when there is a need for individuals to report to more than one manager. They may report to a regional manager for
day-to-responsibilities and a functional manager for sales or production responsibility.
In some situations the temptation to use the matrix is strong but, as with other structures, the weaknesses must be understood. The
greatest weakness is the ambiguity that must be negotiated by the employees. The structure works very well if employees are sophisticated
enough deal with this ambiguity. If not, the matrix structure can be a disaster.
Three Essential Skill Sets