Managers who are struggling to make investment decisions during this recession may find it hard to take financial risks. Ghemawat argues that you must consider the competitive risks of not investing as well as the financial risks of investing. In his 1991 book, “Commitment: The Dynamic of Strategy” (New York: Free Press), he describes this problem in general. Here, he tackles the problem of balancing financial and competitive risks when it becomes most difficult at the bottom of the business cycle.
1. R.H. Hayes and D.A. Garvin, “Managing as if Tomorrow Mattered,” Harvard Business Review, May–June 1982, pp. 71–79.
2. G. Donaldson and J.W. Lorsch, Decision Making at the Top (New York: Basic Books, 1983).
3. For additional specifics on how the analysis ought to be conducted, see:
P. Ghemawat, Commitment: The Dynamic of Strategy (New York: Free Press, 1991), especially chapters 4 and 5.
4. W.M. Cohen and R.A. Levin, “Empirical Studies of Innovation and Market Structure,” in Handbook of Industrial Organization, eds. R. Schmalensee and R.D. Willig (Amsterdam: North-Holland, 1989).
5. W. Skinner, “Big Hat, No Cattle: Managing Human Resources,” Harvard Business Review, September–October 1981, pp. 106–114.
6. See, for example, G. Donaldson, “Voluntary Restructuring: The Case of General Mills,” Journal of Financial Economics ’27 (1990): 117–141.
7. P. Ghemawat, “Sustainable Advantage,” Harvard Business Review, September–October 1986, pp. 53–58.