How to Spot the Upturn Early

By Bronwyn Fryer with Larry Stybel, partner of StybelPeabody

·         Talking with half-a-dozen professional friends at a recent gathering, I was distressed to find how deeply the recession is touching all of them. Two had been laid off; spouses of two others had lost their jobs; and the remaining two were in mortal fear that their own jobs were on the chopping block.

Layoffs are the subject of the March HBR Case Study. The plot for the case is based on discussions I’ve had with my psychologist friend Larry Stybel, who is a co-founder of an executive career management firm called StybelPeabody, a Lincolnshire International Company (Larry and his partner Maryanne Peabody are expert commentators for the case). Larry also is Executive in Residence at the Sawyer School of Business at Suffolk University.

No one has any idea when these bad economic times will end. But Larry also tells me that it’s possible to discern very early signs when the tide is starting to turn.

For example, smart companies with healthy balance sheets will begin to position themselves for a fast “out of the gate” when the economy recovers by making clever, strategic acquisitions. As an example, Larry points to Johnson & Johnson’s recent purchase of Omrix Biopharmaceuticals, which makes surgical products, and the breast implant firm Mentor. J&J picked up these firms for a relatively cheap $1.5 billion. “This is good news,” Larry says, “because unlike many companies, J&J has a healthy attitude that investing is about the long term. It’s not sitting on its cash and shivering with fright. The Best of Breed will start doing these deals. The rest of the herd will then follow the leaders.”

Larry recommends watching for three other signs that the economy is improving:

Uptick in nonexempt overtime. Before companies have the confidence to hire full time staff, they will pay hourly employees for overtime. “Keep asking people, ‘Who is starting to pay overtime?'” This idea comes from Greg Gormican of Gormician & Ayers, CPA.

Increase in back orders for corrugated boxes. Boxes are ordered for one reason: stuff is going to get put into them. This idea comes from (Jeff Ross of Fialcow Capital)

An increase in customer orders at plastics companies. Plastics are ubiquitous in manufactured products. “The plastics industry will see positive change first”. This idea comes from William Flynn.

Why is this important? Larry points out that in the aftermath of corporate downsizing and R&D cutbacks, it will take many companies 120 to 240 days to return to full operational capacity once the recession is over. That valuable time lost will be to the benefit of competitors who were first out of the starting gate when the recovery began. “If your customized leading indicators of positive change is to wait for the headlines in the The Wall Street Journal proclaiming that the recession is over, your Board will want to know why you waited so long,” he observes.