Decision Making Dilemma Managers Face: How to Grow Companies in a Time of Crisis ?
In the previous articles, we discussed how decision making in these times is fraught with risk, uncertainty, and ambiguity. In this article, we examine a key dilemma facing managers in these times when economic conditions are gloomy. For starters, managers face the unenviable task of returning high profits in a time of inflationary pressures. This means that your company has to grow more than the prevailing rate of inflation if real returns have to be made.
For instance, if the inflation rate is 10%, then the companys growth rate must be more than that and more importantly, the percentage increase in net profits must also be more than that if the real return on the capital has to be positive. This is the reason why some stocks perform well when compared to the others, as their real rates of return are more than the inflationary rate.
Next, managers also face the dilemma of rising costs of inputs, increased taxation, and competition from around the world.
The point here is that since governments around the world are raising the taxes as a way to increase the revenues, which means that all the input costs go up leading to a cascading effect on the bottom lines of the companies. Further, with competition from lower wage and lower cost centres becoming more intense, managers in many multinationals and homegrown companies are faced with a situation where they have to not only grow more than the others, but also cut costs in the process.
The point here is that companies can either increase bottom line numbers by increasing revenues and making more profits or cut costs to increase the profitability of their companies. The ideal scenario is where they can increase the profits and decrease costs at the same time, which would lead to Nirvana for the managers.
Finally, in recessionary times, companies have to do with consumers who spend less and demand more. This means that they have to contend with decreasing sales and increased discounts that have to be passed on to the consumers. Hence, the double whammy of decreased profits and decreased profitability means that managers have a tough task on their hands. Moreover, with less consumer purchases, deflation sets in where the prices are low but consumers do not have the money to spend. Hence, in any case, economic crises extract a heavy toll on companies and hence managers face a headache when confronted with decision-making choices.
Of course, the gloomy scenarios outlined here need not be the end of the world situations and there are ways and means to beat the gloom and ride the recession. Innovation is one aspect that companies can adopt to adapt to the tough market environment. Apart from that, companies can also optimize their current processes and reengineer their workflows so that efficiencies and synergies result which create new value for them. They can also rationalize their cost structures so that unnecessary and redundant expenses are eliminated. Finally, they can also focus on making their supply chains that much more effective and efficient.
- Curious Observation
- Decision Making in an Uncertain World
- The Need for Certainty and Control
- VUCA Paradigm for Leadership
Authorship/Referencing - About the Author(s)
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