The global financial crisis has shown that executives should look beyond their individual companies toward the fundamentals of the economy, according to executive education leader Professor Alan Beckenstein.
He said executive education providers should make changes to stay relevant and meet the new requirements of executives.
Professor Beckenstein said the “system” failed, at least in the advanced economies of the world, allowing for an economic meltdown worse than anything seen in seven decades.
Caught in the bubble
He said executives should have thorough grasp of global and national economic events including the potential risks to markets from bubbles and other events that might not appear likely during strong economic growth periods.
Professor Beckenstein said New Zealand was still in the grips of the ‘tech and housing bubbles’ of the 1990s.
But many business leaders (not to mention economists) neither noticed the bubbles nor realised they were unsustainable, leading many businesses to ruin (or government bailout).
“There were plenty of signs (that a collapse was about to occur) but most managers did not see them,” Professor Beckenstein said.
“This means they have got to be more aware of economics and pay more attention to the fundamentals of the economy.”
He cited the example of the Ernst & Young programme, which had a strong economic component, saying that executives also needed a plan for learning beyond the experience base that created previous success.
Managers tended to “lean on the old skill set that got them to the next rung on the ladder” and had built-in biases based upon that skill set.
But the problem was that bubble behaviour had been going on almost continuously since the mid 1990s and many current executives had no experience of anything different, Professor Beckenstein said.
He said that another crucial ability in the post-global financial crisis environment was the ability to lead high performance teams that could cope with “doing more with less.”
They should also have a commitment to adding innovative ideas in an environment where, ironically, their long-term tenure might be less stable.
Professor Beckenstein said that as well as being able to prepare for and anticipate unfavourable events, business leaders needed to seek opportunity from them.
“The ability to redeploy human and financial assets better than competitors can lead to competitive advantage,” he said.
Adversity as teacher
The ability to learn from shocks and adverse conditions and understanding that such risks were possible even when they were not expected could lead to the nimbleness in strategy and tactics that would lead the market, Professor Beckenstein said.
He said New Zealand executives were ahead of the world in some respects, as they have been part of an “economic experiment” for the last 25 years.
But executives had to be aware that New Zealand had a massive housing debt bubble that was playing havoc with the productive economy through a volatile exchange rate.
“An economy is like a rugby team; you have to get your scrums and line-outs before you start doing the razzle dazzle.
“Although they are trying to train the next generation of executives how to cope with economic volatility, executive education providers were not immune to the effects of the worldwide recession either.
“The problem is that, although executive education courses are important for keeping executives ahead of the pack and equipped with all the necessary skills, they are also a tempting item to cut from the budget when the going gets tough.”
Professor Beckenstein said there was a sharp decline in attendance at some courses when the crisis hit, not because executive education had suddenly become less important.
He said, globally there was a “huge cash-flow issue” at many companies for a few months and that attendance was now picking up again as the economy slowly recovers.
While saying it was too early to pick any trends in terms of which courses and topics would become more or less popular as a result of the crisis, he noted that leadership courses had been doing well recently.
Professor Beckenstein said that over the past 15 years there has been a slow movement from open courses towards customised programmes, although both had their own pros and cons.
In-house customised courses were useful for organisations that were undergoing some form of change that required groups of employees trained in a specific skill set at once.
Open courses allowed interaction between people from different companies, giving executives exposure to “new ideas and fresh thinking.”
But they also could be time-consuming and this was one factor making them unattractive for many businesses at the moment, he said.
“Companies are afraid to let someone go for too long and the employees are afraid to leave because there might be a restructure while they’re away,” Professor Beckenstein said.
Professor Beckenstein has been teaching economics, management and business-government relations at the University of Virginia’s Darden Graduate Business School since 1972 and is now Head of the Economics Group.
He is co-author of three books including The Economics of Multi-Plant Operation, and has published articles on antitrust economics, industrial economics, forecasting, management, public policy and environmental policy.
He has taught in a number of executive development programmes for both Darden and private organisations including Boise Cascade, IBM, Union Camp, Standard and Poor’s, Bacardi, Price Waterhouse, Visy and Fletcher Challenge among others.
For the past 16 years, he has been the faculty leader for the Ernst & Young (NZ) Executive Programme, which is based in Taupo.