How can you determine where you are in your industry business cycle?

Business Cycle volatility is increasing. Cycles are shorter. Predictability is decreasing.

Budgeting, Strategy, Board Capex: the Big Decisions that matter in your firm all depend on the business cycle.

How can you determine where you are, and how long the cycle will last?

The starting point is to identify what triggers demand in your industry.

Consider 12 areas:

1. Government/Regulatory
2. Commodity Prices
3. Interest Rates
4. Technology
5. End user preferences and demands
6. Usage/Consumption levels
7. New customer entry
8. Legacy customer exit
9. Consolidation
10. Currency
11. Customers/Intermediaries current supply
12. New and modified supplier sources

One company I worked with identified that Oil prices triggered their increases and decreases in demand for the industry. Once verified, the forecast and projections of Oil prices became one of the predictors of demand and the stage of the business cycle.

Once you have your triggers verified, shift your focus to the future.

How will demand change for your industry? How are customers shifting their future requirements. Project the impact of this on your industry.

As an example, a firm in the travel industry identified the changes in customer requirements from physical locations and agents to a preference for Internet based booking. This later became mobile based booking. As the firm was able to project the outcomes on their business from this disruptive shift, they acquired the capabilities and technology necessary to be a leader in Internet and Mobile based travel services for business.

Lastly, separate the differences between a trend and a cycle.

In the Oil price example, the rebound in Oil prices meant a return to strong demand. In the future looking travel industry case, the bricks and mortar agent based business demand never returned to previous levels. I recommend setting a work session with the leaders and experts of your management team and identify the data and projections that will give you confidence in your findings.

Communicating this information to your board, and to your CEO/Chair is key. Determine how to prepare this in a one page chart that shows:

1. the projection of where you are in your cycle
2. the trend for the upcoming periods
3. the estimate on demand/price
4. and the impact on your company.

Clear thinking and process based decision alternatives will help you and your board stay ahead of the competition.

You will better be able to Determine how best to deploy capital relative to the business cycle. This decision making creates Value for you and your shareholders.

Scott Newton is Managing Partner at Thinking Dimensions.

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Thanks! Scott