Guns, Butter or Wine
One month in to 2023 and every CEO is feeling perhaps…tapped out?
Cost cutting, headcount reductions, forecast revisions, operational pull-backs, the list of operational and strategic considerations is growing daily. All the while, demands from board members, activist shareholders, unhappy employees and other stakeholders are adding fresh challenges.
No doubt there is trouble brewing somewhere, but some companies are managing to embrace their inner economist to power through a world changing at a relentless pace. Outside of GDP, CPI and other economic indicators of supply and demand, the notion of guns and butter can turn reasoning into advantage. This simple production possibility model was first put forth in a 1936 radio broadcast in Germany, subsequently formalized 12 years later by Paul Samuelson, the first American economist to win the Nobel Prize.
Why this concept is critically important to business strategy should be fairly obvious: without a distinctive approach to decision-making, success becomes unattainable. Simply put, companies who take a longer-term view of capital allocation will not be swayed by short-term headwinds.
Take @PwC’s recently released 26th Annual Global CEO Survey, which polled 4,410 CEOs in 105 countries and territories in October and November 2022. Unequivocally, business leaders were pessimistic stating they feared a dramatic fall in economic growth and expect they’ll need to transform or die. Further, 4 in 10 CEOs said their companies would not be economically viable a decade from now unless they underwent a transformation.
As Bob Moritz, Global Chairman, PwC said, “The risks facing organisations and society today cannot be addressed alone and in isolation. CEOs must therefore continue to collaborate with a wide range of public and private sector stakeholders to effectively mitigate those risks, build trust and generate long term value – for their businesses, society and the planet.”
That sounds a lot like the value investor relations imparts to management. Consistent, two-way message flow between a company and the broader financial community is akin to allocating monies for both guns and butter. Anyone who studies economics understands that an investment in IR will produce future dividends and returns.
As dry January comes to an end, raise a glass and toast the life and work of economist Paul Samuelson.
