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October 2017

How people became the central focus of economics

2018-10-11T13:10:25+00:00

When the subject of investment comes up in economics, it is often with hard, physical assets in mind. Companies talk of investing in factories, governments in infrastructure, and people in houses. But there is a softer, less tangible focus of investment that, in many cases, is more important: knowledge and skills. Companies try to cultivate these in their workforces, governments in their populations, and people in themselves. Economists use the concept of “human capital” to describe this kind of investment. The thinking is that just as spending on buildings or roads generates physical capital, so to investment in knowledge generates human capital.

 

The theory of human capital was developed half a century ago. Although classical economics had noted that people’s abilities, and not just land and equipment, were crucial to the production process, little thought was given to what that actually meant. In the 1950s Gary Becker, a young American economist, recognized this blind spot when studying the link between education and incomes.

 

To explain what was going on, Becker distinguished between specific and general human capital. Specific capital arises when workers acquire knowledge tied to their firms, such as how to use proprietary software. Companies gladly pay for this because it is not transferable. But they are far less willing to pay for general human capital since it can be applied to many different jobs. Instead, individuals must to a significant extent invest in general capital themselves, whether directly through tuition fees or indirectly through lower wages at the start of their careers.

How people became the central focus of economics 2018-10-11T13:10:25+00:00

September 2017

What’s behind the conflict between Google and Uber?

2018-10-11T13:13:57+00:00

Traveling in self-driving cars will, eventually, be a common occurrence in cities. The question is when. But a recent clash between Uber, the ride-hailing giant, and Alphabet, Google’s parent company, has cast some doubts on the future of self-driving technology and which company will profit from it. Waymo, Alphabet’s autonomous car unit, has sued Uber for the appropriation of trade secrets and patent infringement. The result of the lawsuit could have big implications both for companies and consumers. What is behind the dispute, and which firm is likely to win out?

 

The problem can be summed up in one word: Ottomotto. Last August Uber announced it had acquired a seven-month-old startup that specialized in autonomous lorries, called Ottomotto, for around $680m. The young startup was co-founded by Anthony Levandowski, a veteran of Alphabet’s self-driving car efforts. According to Waymo’s lawsuit, which was filed in February, before abruptly resigning from Alphabet and founding Ottomotto, Mr Levandowski stole around 14,000 proprietary documents, which has helped Uber replicate Waymo’s lidar technology. Lidar users lasers to scan surrounding objects and is employed in self-driving cars. Uber denies the allegations, says its lidar system is different than Waymo’s and suggests that Waymo is using this lawsuit to try to thwart the innovation and business of a rival.

 

Court battles, like divorces, rarely end with either party looking good. But in this instance Uber stands to lose the most. The conflict reinforces Uber’s reputation as a rough-and-tumble startup with a culture of winning at all costs.

 

But while a lot of attention will be paid to which company will win out in the lawsuit, it is also worth asking what this means for consumers. The arrival of reliable self-driving cars could herald a safer era for people, with fewer accidents and newly found time to accomplish things during commutes that were previously spent staring at the road.

What’s behind the conflict between Google and Uber? 2018-10-11T13:13:57+00:00

Why do firms exist?

2018-10-11T13:16:32+00:00

The idea of the price mechanism is central to the study of economics. Market prices convey information about what people want to buy and what others want to sell. Adam Smith used the metaphor of the “invisible hand” to describe how the economy is governed by price signals. In 1937 a paper published by Ronald Coase, a British economist, pointed out a flaw in this view: it did not fit what goes on within firms. When an employee switches from one division to another, for instance, he does not do so in response to higher wages, but because he is ordered to. The question posed by Coase was a profound, if awkward, one for economics. Why do firms exist?

His answer was that firms are a response to the high cost of using markets. It is often cheaper to direct tasks by fiat than to negotiate and enforce separate contracts for every last transaction. Such “exchange costs” are low in markets for uniform goods, wrote Coase, but are high in other instances. But Coase’s answer only raised further tricky questions. For instance, if the reason we have firms is to reduce transaction costs, why have market transactions at all?

To address such questions, economists have developed a theory of contracts, which makes a distinction between spot transactions and business relations that require longer-term pacts. Most transactions take place in spot markets, e.g. buying a newspaper or taking a taxi. And they are governed by market forces, as lots of buyers bargain over the price of similar goods. Things become trickier for goods or services that are not standardised. Parties to a transaction are then required to make commitments to each other that are costly to reverse. Take a property lease.

A business that is evicted from its premises could not quickly find something similar. Equally, if a tenant suddenly quit, the landlord would be stuck. Each could threaten the other in a bid for a better rent. A long-term contract that specifies the rent, tenure and so on protects both parties from the opportunism of the other. For many business arrangements, it is difficult to set down all that is required of each party in all circumstances. This is where an “incomplete” contract has advantages. A marriage contract is of this kind. So is an employment contract. It has a few formal terms: job title, working hours, initial pay, and so on, but many of the most important duties are not written down. It cannot be enforced by the courts because its obligations are implicit. It stays in force mostly because its breakdown would hurt both parties. Because market forces are softened in such a contract, an alternative form of governance is required, which is the firm.

Why do firms exist? 2018-10-11T13:16:32+00:00

The Top Nine Countries for Outsourcing Business

2018-10-11T13:15:41+00:00

1. India

India is the most popular country for outsourcing. This is why it has become normal to hear someone who has an Indian accent, while you are attempting to activate your new iPhone. Companies across the world are reaching out to India because their culture is full of intelligent, efficient, and hard-working individuals. The only thing that is a real drawback is the country’s environment. The weakest side of this country is their political environment. The government is led by a president whom is independent of his legislature. Not to mention, the country has the second highest population in the world next to China. These two elements can sometime work against each other, thus creating an unstable environment.

2. China

China is a country that is still adjusting to the world’s economy because it decided to begin to enter global business 25 years ago. Known for having the largest populous, China has over 1.3 billion consumers in its market. Manufacturers and retailers throughout the world jumped for joy when they discovered the opportunity that is – China. This country is a key player in the global outsourcing industry and plans to steal a significant segment of India’s outsourcing revenue in the future.

3. Malaysia

Too many outsourcing newbies, Malaysia is a part of the top three global leaders. Its predicted net-value for the 2016 fiscal year is said to be close to 3 billion US dollars. Unlike China and India, Malaysia has low people skills, which lower its attractiveness.

4. Thailand

Thailand is a very popular outsourcing country because it has been deemed to be one of the most financially attractive countries in the world. Its low costs and high returns entice business professionals around the world to invest into this profitable country. However, the country’s downfall is its political infrastructure.

5. Brazil

Brazil is a very balanced country when it comes to outsourcing considerations. Their financial attractiveness, political/economic environment, and people skills are quite even. This placed the country atop the best outsourcing locations around the globe.

6. Indonesia

The country has decided to move away from its dependence on exports. Indonesia is now restructuring its strategy toward economic growth. Their main proponent is the IT segment.

7. Bulgaria

At this point, you might have noticed that the list has a strong trend toward Asian countries. Bulgaria is making Eastern Europe proud through its fundamental strategy, “nearshoring”. This country offers less expensive labor and services toward neighboring countries, which include the United States and Western Europe. This tactic has helped the country climb the ranks and reach the top ten among outsourcing countries. Through an attractive and stable macroeconomic and political environment, the country has been able to provide competitive pricing and a high-quality workforce.

8. Philippines

With a growth rate of 46%, the Philippines have become a strong competitor among the outsourcing industry. This growth rate has been maintained due to this country’s low labor costs, highly skilled workforce, and language diversity. Call centers have begun showing up – 80% of this service is administered to the US.

9. Chile

Chile has become a big player in the outsourcing world due to its advantageous location. Over forty percent of Chile’s exports go directly to Europe and the United States. Оne of the major strengths of this country is its stable government and currency. This is also supplemented by an open immigration policy, which allows work permits to be obtained within a week.

The Top Nine Countries for Outsourcing Business 2018-10-11T13:15:41+00:00

July 2017

Ireland keeps the crown for fastest-growing EU economy

2018-10-11T13:21:41+00:00

Ireland’s economy was the fastest-growing in the European Union for the third straight year during 2016, although by a narrower margin than previously.

Figures released by the country’s statistics agency showed gross domestic product was 5.2% higher than in 2015, having increased by 2.5% in the final three months of the year from the previous quarter.

Ireland was one of five eurozone members to receive a bailout from the International Monetary Fund and the EU during the eurozone’s government debt crisis, emerging from a three-year program of budget cuts in late 2013. Since then, it has boasted the strongest recovery, although Spain’s economy also grew rapidly last year.

However, another year of rapid economic growth is unlikely to allay concerns among government officials and businesses about the longer-term impact of Britain’s June decision to leave the European Union.

No remaining EU member stands to be more affected by that choice than Ireland. The country’s farmers sell half their exports to Britain, while a quarter of the country’s shipments to Europe of all types go to the U.K.

It is widely accepted that the GDP figures don’t provide a clear picture of Irish growth, since they are distorted by the large number of international companies operating from Ireland. The scale of those distortions was made clear in July 2016, when the Central Statistics Office published new figures for 2015 that showed the economy expanded by 26% during the year, a jump that largely reflected so-called inversions, in which U.S. corporations merge with companies based abroad to benefit from their lower tax rates.

The CSO last month announced the launch of a new, annual measure of output intended to filter out some of those distortions, and give a clearer picture of growth. Publication of that measure will begin later this year.

But other, more reliable measures of activity also point to strong year in 2016. The unemployment rate fell to 6.7% in January from 8.5% a year earlier, an indication that much of the pickup in output recorded by the GDP figures was real.

Ireland keeps the crown for fastest-growing EU economy 2018-10-11T13:21:41+00:00

June 2017

World Happiness Report 2017

2018-10-11T13:23:09+00:00

Norway tops the global happiness rankings for 2017.

Norway has jumped from 4th place in 2016 to 1st place this year, followed by Denmark, Iceland and Switzerland in a tightly packed bunch. All of the top four countries rank highly on all the main factors found to support happiness: caring, freedom, generosity, honesty, health, income and good governance. Their averages are so close that small changes can re-order the rankings from year to year. Norway moves to the top of the ranking despite weaker oil prices. It is sometimes said that Norway achieves and maintains its high happiness not because of its oil wealth, but in spite of it. By choosing to produce its oil slowly, and investing the proceeds for the future rather than spending them in the present, Norway has insulated itself from the boom and bust cycle of many other resource-rich economies. To do this successfully requires high levels of mutual trust, shared purpose, generosity and good governance, all factors that help to keep Norway and other top countries where they are in the happiness rankings.

All of the other countries in the top ten also have high values in all six of the key variables used to explain differences among countries and through time – income, healthy life expectancy, having someone to count on in times happiness of trouble, generosity, freedom and trust, with the latter measured by the absence of corruption in business and government. Here too there has been some shuffling of ranks among closely grouped countries, with this year’s rankings placing Finland in 5th place, followed by the Netherlands, Canada, New Zealand, and Australia and Sweden tied for the 9th position, having the same 2014-2016 score to three decimals.

Happiness is both social and personal.

This year’s report emphasizes the importance of the social foundations of happiness. This can be seen by comparing the life experiences between the top and bottom ten countries in this year’s happiness rankings. There is a four-point happiness gap between the two groups of countries, of which three-quarters is explained by the six variables, half due to differences in having someone to count on, generosity, a sense of freedom, and freedom from corruption. The other half of the explained difference is attributed to GDP per capita and healthy life expectancy, both of which, as the report explains, also depend importantly on the social context.

However 80% of the variance of happiness across the world occurs within countries. In richer countries the within-country differences are not mainly explained by income inequality, but by differences in mental health, physical health and personal relationships: the biggest single source of misery is mental illness. Income differences matter more in poorer countries, but even their mental illness is a major source of misery.

Work is also a major factor affecting happiness. Unemployment causes a major fall in happiness, and even for those in work the quality of work can cause major variations in happiness.

People in China are no happier than 25 years ago.

Our China chapter is led by Richard A. Easterlin, who pioneered the economics of happiness more than 40 years ago. It contrasts the sharply growing per capita income in China over the past 25 years with life evaluations that fell steadily from 1990 till about 2005, recovering since then to about the 1990 levels. They attribute the dropping happiness in the first part of the period to rising unemployment and fraying social safety nets, with recoveries since in both.

Much of Africa is struggling.

The Africa chapter, led by Valerie Møller, tells a much more diverse story, as fits the African reality with its great number and vast range of experiences. But these are often marked by delayed and disappointed hopes for happier lives.

Happiness has fallen in America.

The USA is a story of reduced happiness. In 2007 the USA ranked 3rd among the OECD countries; in 2016 it came 19th. The reasons are declining social support and increased corruption  and it is these same factors that explain why the Nordic countries do so much better.

World Happiness Report 2017 2018-10-11T13:23:09+00:00

March 2017

8 simple ways to save money

2018-10-11T13:26:25+00:00

Sometimes the hardest thing about saving money is just getting started. It can be difficult to figure out simple ways to save money and how to use your savings to pursue your financial goals. This step-by-step guide to money-saving habits can help you develop a realistic savings plan.

  1. Record your expenses

The first step to saving money is to figure out how much you spend. Keep track of all your expenses—that means every coffee, newspaper and snack you buy. Ideally, you can account for every penny. Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Consider using your credit card or bank statements to help you with this. If you bank online, you may be able to filter your statements to easily break down your spending.

  1. Make a budget

Once you have an idea of what you spend in a month, you can begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income—so you can plan your spending and limit overspending. In addition to your monthly expenses, be sure to factor in expenses that occur regularly but not every month, such as car maintenance.

  1. Plan on saving money

Now that you’ve made a budget, create a savings category within it. Try to put away 10–15 percent of your income as savings. If your expenses are so high that you can’t save that much, it might be time to cut back. To do so, identify non-essentials that you can spend less on, such as entertainment and dining out, and so on.

Tip: Considering savings a regular expense, similar to groceries, is a great way to reinforce good savings habits.

  1. Choose something to save for

One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for—anything from a down payment for a house to a vacation—then figure out how long it might take you to save for it.

Here are some examples of short- and long-term goals:

Short-term (1–3 years)

 

  • Emergency fund (3–9 months of living expenses, just in case)
  • Vacation
  • Down payment for a car

 

Long-term (4+ years)

 

  • Retirement
  • Your child’s education
  • Down payment on a home or a remodeling project
  1. Decide your priorities

After your expenses and income, your goals are likely to have the biggest impact on how you save money. Be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-term needs. Prioritizing goals can give you a clear idea of where to start saving. For example, if you know you’re going to need to replace your car in the near future, you could start putting money away for one.

  1. Pick the right tools

If you’re saving for short-term goals, consider using these tools:

  • Regular savings account
  • High-yield savings account, which often has a higher interest rate than a regular savings account
  • Bank money market savings account, which has a variable interest rate that could increase as your savings grow
  • Certificate of deposit (CD), which locks in your money at a specific interest rate for a specific period of time
  1. Make saving automatic

Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much and where to transfer money to, or even split your direct deposit between your checking and savings accounts. Automated transfers are a great way to save money since you don’t have to think about it and it generally reduces the temptation to spend the money instead.

  1. Watch your savings grow

Check your progress every month. Not only will this help you stick to your personal savings plan but it also helps you identify and fix problems quickly. These simple ways to save money may even inspire you to save more and hit your goals faster.

8 simple ways to save money 2018-10-11T13:26:25+00:00

The Ten Most Influential Economists of All Time

2018-10-11T13:27:16+00:00

The economy has a huge impact on the quality of our lives, those whom have had an effect on the policy adopted, how it functions and the economy’s health remain influential both during their tenure and for generations after. Here the Complete University Guide draws up its list of those we consider the most influential economists of all time:

  1. Adam Smith 1723–1790

You may recognise Adam Smith, he’s the chap on the back of your £20 note. Educated at the University of Glasgow at the age of 14, he went on to pioneer political economy and is now deemed the ‘Father of Modern Economics’. Best known for his book The Wealth of Nations, in which Smith argued for free trade, market competition and the morality of private enterprise. The book still forms the foundation for economic policies around the world.

  1. Karl Marx 1818–1883

More commonly remembered as a revolutionary advocate of communism, Marx was in fact also a classical economist. His theories essentially predicted that capitalism would lead to fluctuations and economic crises, guess what? He was right. Marx went on to publish The Communist Manifesto, having a huge influence on the communist movement of the 20th century, heavily shaping the political landscape. Had communism not been brushed aside by capitalism, Marx’ contribution to economic development may be more widely acknowledged today.

  1. John Maynard Keynes 1883–1946

British economist, John Maynard Keynes argued against the long held view that free markets would automatically provide full employment, spearheading a revolution in economic thinking. He proposed that state intervention is required during boom and bust cycles of the economy, a policy adopted by most western economies during the thirties. Although this went out of fashion by the seventies, the world has seen a return to Keynesian policy during the recent global economic crisis, notably in the UK where Gordon Brown increased fiscal stimulus in an attempt to combat recession.

  1. Milton Friedman 1912–2006

Milton Friedman, an avid supporter and proponent of free markets, was educated at Rutgers University, the University of Chicago and Columbia University. Awarded the 1976 Nobel Prize for Economics, he is most notable for his work on consumption analysis, monetary history and theory, and stabilisation policy. Despite his achievements, Friedman polarises opinion with many attributing the rise of conservatism in America, during Reagan’s presidency, to his economic policies.

  1. Jan Tinbergen 1903–1994

Another Nobel Prize winner on our list, Dutch economist, Jan Tinbergen was educated at Universiteit Leiden. Tinbergen is considered a pioneer in the field of econometrics, the application of macroeconomic models to economic policy making, this remains the method by which economic research is applied today.

  1. John Forbes Nash, Jr. 1928–Present

OK we’ve cheated, Nash is technically a mathematician, a genius one at that. But Nash’s pioneering work on game theory has been monumentally influential in the arena of market economics, so much so that he was awarded the 1994 Nobel Prize in Economics. Nash quite literally personifies the fine line between genius and insanity, having struggled with schizophrenia most of his life, the subject of 2001 Hollywood movie, A Beautiful Mind.

  1. Muhammad Yunus 1940–Present

Muhammad Yunus has done much for the economies of the world’s poorer areas. Early in his career, Yunus discovered that very small loans had a disproportionately positive impact on a poor person. Loaning to poor people was a practice banks were reluctant to subscribe to before Yunus’ work. The microcredit was born, now widely used in developing countries and with the potential to alleviate poverty. Critics of microcredit argue that the practice leaves the world’s poor in a debt trap.

  1. Steven D. Levitt & Steven J. Dubner

Economist, Steven D. Levitt and journalist, Stephen J. Dubner pulled their resources to write the hugely popular Freakonomics, published in 2005. Having sold over seven million copies worldwide the book has made economics accessible to the common man. The book explores a diversity of subjects not usually covered by traditional economists, melding pop culture with economics.

  1. Warren Buffett 1930–Present

Not an economist by trade but an economist by education, Warren Buffett earned his masters in the field at the one and only Columbia University. Buffett joined a Wall Street investment firm, where he applied a statistical and methodical approach to trading. Buffett is widely considered the most successful investor of the 20th Century and is consistently ranked within the top ten of the world’s richest people.

  1. Alfred Marshall 1842–1924

Having written a book with as justifably bold a title as Principles of Economics, it would take a brave person indeed to exclude Alfred Marshall from our Ten Most Influential Economists of All Time. Although you may not know him by name, you’ll almost certainly recognise one of the theories he is most noted for working on: supply and demand. Marshall was by no means the first economist to refer to the phenomenon, but he is widely atrributed with creating its graphical representation, and developing the model further.

The Ten Most Influential Economists of All Time 2018-10-11T13:27:16+00:00

February 2017

Bitcoin

2018-10-11T13:28:03+00:00

What is Bitcoin?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

It’s the first example of a growing category of money known as cryptocurrency.

What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who created it?

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Who prints it?

No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’ using computing power in a distributed network.

This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

So you can’t churn out unlimited bitcoins?

That’s right. The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).

What is bitcoin based on?

Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.

The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

What are its characteristics?

Bitcoin has several important features that set it apart from government-backed currencies.

1. It’s decentralized

The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank  decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.

2. It’s easy to set up

Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.

3. It’s anonymous

Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…

4. It’s completely transparent

…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all.

If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.

There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.

5. Transaction fees are miniscule

Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.

6. It’s fast

You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

7. It’s non-repudiable

When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.

Bitcoin 2018-10-11T13:28:03+00:00

November 2016

Leadership in a Crisis – How To Be a Leader

2018-10-11T13:28:46+00:00

When a business faces a period of intense difficulty, the abilities of its top management and especially those of its CEO can make the difference between bankruptcy and survival.

In fact, a true leader is capable of using a crisis to carry out changes within the organization so that it emerges stronger and in a better position to take advantage of the changed market conditions.

What are the characteristics that the head of a company must display when disaster strikes?

Stay in control

If your sales suddenly drop because of a new competitor entering your market or you cannot manufacture your best-selling product because a key raw material is not available, there is nothing much you can do about it immediately.

The issue at hand can only be resolved after a well thought-out strategy is put into place. Obviously, you cannot control the crisis right away. But you can control how you react to it.

Everybody in your organization will be watching you and will follow your lead. It is up to you to remain calm and put the appropriate resources into play to tackle the situation facing your company.

Don’t be afraid to take decisions

Remember that “desperate times call for desperate measures.” If you have a perennially loss-making manufacturing unit or sales outlet it may be time to close it down before it drags the whole company into the red.

You cannot please everyone with each of your decisions. Some people are bound to be adversely affected. As a leader, it is your duty to do the best that you can for them and move on.

Jack Welch, the immensely successful CEO of GE, earned the moniker Neutron Jack because of his ruthless management style. He fired entire layers of management and closed down many of the company’s businesses.

GE performed extremely well during his two decades at the helm largely because Jack Welch had the courage to go ahead with what he thought was best for the company regardless of criticism.

Change course, your company’s future may depend on it

In 1943, speaking about the demand for computers, Thomas Watson, president of IBM said, “I think there is a world market for maybe five computers.”

Several decades later, in 1977, Ken Olson, founder of Digital Equipment Corporation said, “There is no reason anyone would want a computer in their home.”

Both predictions were made by top managers of world-class companies. Both organizations went on to become market leaders. How did they go on to become so successful when their predictions were so obviously wrong? They were not afraid to change direction when they saw a demand for their product.

Concentrate on what is important

When times are difficult many managers tend to retreat into their shell. They spend time on trivial issues and ignore the problem that is threatening the very existence of their organization.

Unless the CEO is able to galvanize the top management team to squarely address the critical issues facing the company, there is little chance of climbing out of the crisis.

Johnson & Johnson’s handling of the Tylenol crisis is legendary. Back in 1982, seven people in the Chicago area died after taking cyanide-laced Tylenol capsules that someone had deliberately poisoned. The company decided to withdraw all 31 million bottles of Tylenol from the market and relaunch the product in tamper-proof packaging.

Within a year, Johnson & Johnson saw its share of the analgesic market climb from a low of 7% to 30%. The company’s chairman, James Burke, was widely credited with providing the leadership that pulled Johnson & Johnson out of the crisis.

Strong leadership is essential

The crucial difference between a company that survives a crisis and one that sinks lies in its leadership. If the top management is able to provide the guidance and direction that is necessary, the organization can come out better positioned to tackle the challenges of the market.

Leadership in a Crisis – How To Be a Leader 2018-10-11T13:28:46+00:00

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