I think we should be humble first because we cannot know the future.
There are too many uncertainties in the economic, political and technological fields, and there are no clear signs of improvement, and they may even intensify over time. Therefore, companies should focus on what they can control and ensure that they can cope with potential variables.
The key is to weigh the pros and cons. On the one hand, companies should strive to carry out scenario planning, and on the other hand, they should evaluate various options and provide standard processes for major decisions. But I think many companies do not do this in a structured way.
You can refer to the practices of some large oil companies. When oil prices fall, they actually consider how to benefit when oil prices rise, and after considering various scenarios and options, they strategically “bet”, which has achieved very good results for oil companies. This is because they lock in the goal of “robustness” and consider large capital investments and long-term goals on this basis.
Take “robustness” as the basis, and find options to adapt at the same time.
I think many companies should read classics, such as The Art of War, and do value investing to think about how to strengthen their own strength and prepare for a rainy day. Companies should use their balance sheets in a smarter way, thinking about which parts of the value chain, which industries, and which countries to invest more money in; where to give up some profits to reduce risks?
Taking the risk of using capital after careful calculation is the responsibility set by the company for management and an important part of the company’s business. The board of directors, CEO and all relevant responsible persons must really be careful about the calculations, not only thinking about the current situation, but also considering how to allocate capital between investment projects in different countries, factories and production lines, which is a well-known problem. Deploy resources wisely and build valuable and difficult-to-replicate advantages. Ensure that no matter how the future evolves, relatively positive results will be achieved.
Experience is accumulated. Companies may have had an easier time in the past. But in general, taking a structured approach to risk management and actually calculating probabilities and possible outcomes is definitely the direction that many companies need to work towards in the future.
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