Saturday, April 04, 2009

Lessons for tough times

From the Businessworld interview with Shumeet Banerjl, CEO of Booz and Company come some excellent lessons.

With regard to being better equipped for recessionary times:
There are two most important lessons that a company should learn. One is that debt is a good thing, but you have got to watch capital structure where you have debt deployed for acquisitions. The second lesson . . is that chasing valuation is a bad basis to build companies. If you build fundamentally strong companies, you get good valuations, but it doesn’t work the other way round. Good companies pay attention to ensure that they achieve an adequate balance between top line investment and operating costs.

What companies can do instead of just cutting costs:
. . . there are tremendous opportunities that will emerge in this situation. And in order to make that happen we take two or three ingredients. One is industry structure and dynamics. What do you think will be the shape of the industry in two years from now? You don’t have to be right, you have to be more or less accurate. Second, what role are we as a company going to play in that structure? What is the shape of assets we would like to own? What kind of capabilities do we need, and where will we get them from? And third, that cash is king has never been truer. Do we have the balance sheet strength and the capital sources to ensure that we can move fast when opportunities emerge? We have seen again in the course of the past few months that opportunities have risen dramatically and very, very fast. And being in a position to act on those is very important.
Good interview.


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