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18 January 2019
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Pendulum swings: Why business cycles happen

31 March 2014 

There are natural cycles in business just as there are in nature.

Any evolving industry will reveal these progressions and good purchasing people can read them to understand how forthcoming deals are likely to pan out.

Trends in commerce may be push or pull, but if they are one now they will soon be the other – for that is how things go. Pendulum swings within organisations see decentralisation until someone decides that things are out of control and it all gets pulled back to the middle again, but only long enough for a new broom (or some consultants) to suggest that such controls are stifling the business and round we go again.

None of these things should cause too much concern; they are just some of those things that happen and, like rebranding, for a while they might create a bit of noise and they might make a few people feel good, but they rarely bring about any significant benefit to the industry sector.

One element of these cycles that does help, though, is where a few good people break away from one of the sector monoliths and set up a niche company doing something a bit different. They may be small, but they are nimble and start to make a success of their new enterprise. At some point someone will make these folk an offer that they really shouldn’t refuse and their baby will be swallowed by a bigger fish that will, in time, homogenise their offering.

Another positive aspect of these cycles is where a company offering one product or service sees an opportunity to gain greater market penetration by offering complementary products or services. To start with they might partner with another provider, but if they are serious they will buy up or merge with these partners. Sometimes this integration works well, but at other times the joins can be very apparent to the client. 

At some point the conglomerate will decide that things are not working too well and will divest itself of the acquisitions and revert to its original specialism and that opens the door for the divested operations to do something new and different if they are free of big corporate shackles.

Clients need suppliers as suppliers need clients. One side or the other will lead any market at any one time as fads and fashions cycle through. As long as there are enough brave people in either camp who are prepared to take a chance and either sell or buy something different, then there will be health in that industry. Stagnation is the last thing that we want and that is what you tend to get from competition between equals.

Business cycles bring change of some sort. They shift the balance and shake things up a little. They rarely make a major impact, but they do keep their sector healthy – evolution not revolution. Change is something that we need, however insignificant the individual impact. The movement around those business cycles is nothing that should raise concerns – it’s only when we see no movement for a period of time that we ought to be concerned.

John Bowen is an FM consultant