A new management paradigm - conserve cash

What we are experiencing now might be a new paradigm for successful management.

Only a year ago, companies that jealously hoarded cash were viewed with suspicion, even those as secure as Microsoft! To be a successful manager, it was thought, was to pay out significant dividends or to buy back shares. Thus the commercial paper market became popular with businesses borrowing to satisfy these conventions of the old paradigm. Then, late last year, the commercial paper market closed overnight which began a frantic scramble for cash to pay staff…etc. Since then, companies have sought to scramble together all the cash that they can and spending less in the process. Pressures from investors inquiring about the durability of the businesses cash flow at current “burn rates” has now replaced those of whining for greater dividend payments.

Some cash hoarders are now taking advantage of their reservoirs of stored up cash to buy up their supply chains, competitors or conglomerates at low prices. $71 of foreign acquisitions have come from Japanese companies last year alone and many Indian conglomerates are buying up in a similar vein. Microsoft is sitting on a $21 billion hoard and now has a lot of options with Bill Gates’ prediction that the firm can last a year with zero sales. These firms are the true winners of the current climate.

Thus companies have entered a new mindset: thrift is good. And in many respects this is true. However, thrift is only good until everyone does it, or what Keynes calls “the paradox of thrift”. If everyone stops spending and decides to hoard cash, nobody wins and the economy will slow down even more. The real issue for firms now will be finding a balance. While holding some cash in the bank will be vital, so too will be cut backs in the right areas and in the right way. frugal investing and spending must replace the current frozen markets soon or else the situation will become a lot worse.

Here’s a great link from the economist about this issue:

Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
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Unit 2 Macro: The Importance of Productivity [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Revision notes on unemployment [20 May 2012]
Grexit - Andrew Balls on Greece and the Euro [16 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Unemployment Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
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Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 2 Macro: Britain back in Recession [29 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
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Unit 4 Macro: Pain in Spain as Fiscal Austerity Bites [1 Apr 2012]
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Intergenerational Equity - Fairness and the Slump [28 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
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Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Unit 4 Macro: Money, Debt and the New World Order [22 Jan 2012]
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Resources on Keynes and Hayek [27 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
Unit 4 Macro: The Rise in Self Employment [17 Dec 2011]
Introduction to Neuroeconomics - Fusing Psychology with Economics [16 Dec 2011]
Unit 4 Macro: Does UK Manufacturing have a Future? [30 Nov 2011]
Where is the UK Economy? National Output [22 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
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UK Unemployment in October 2011 [12 Oct 2011]
Unit 4 Macro: Unit Labour Costs and Inflation [12 Oct 2011]
Skidelsky in Madrid [12 Oct 2011]
Unit 2 Macro: UK suffers a weak recovery [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Unit 2 Macro: Income and Wealth in the UK [12 Sep 2011]
UK Macro: Risks of a Double Dip Recession [12 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
Unit 4 Macro: GDP per person since the credit crunch [19 Aug 2011]
Keynes v Hayek - the BBC Debate [2 Aug 2011]
hiphopnomics [31 Jul 2011]
What might happen on August 2nd? [12 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
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Keynesian Economics - 75th anniversary of General Theory [7 Jul 2011]
AQA ECON4 Context [20 Jun 2011]
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AQA Macro: Remember to revise inflation [25 May 2011]
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A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: Innovation and Economic Policies [18 May 2011]
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UK Economy Update: What Mervyn Said [11 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
A2 Micro: Innovation in Markets [4 May 2011]
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AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
A2 Micro: EU Aviation - State Aid and State Ownership [28 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
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Focus on Poland [5 Apr 2011]
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Timetric: Unemployment in the US Economy [1 Apr 2011]
The Scale of Remittances [1 Apr 2011]
The New North - Population Shift [23 Mar 2011]
AS Macro Revision: Investment Spending [12 Mar 2011]
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Timetric: Total Employment in the UK Economy [10 Mar 2011]
Ireland - Mass Unemployment and Shrinking GDP [10 Mar 2011]
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Timetric: Research and Development in the UK [7 Mar 2011]
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Timetric: Regional Unemployment in the UK [4 Mar 2011]
Tuesday Talks! The Smell of Money [2 Mar 2011]
EU Economics: Germany leads Euro Zone revival [25 Feb 2011]
EU Economics - Life at the jagged edge of the Euro Zone [20 Feb 2011]
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