Model Management: Stock market meltdown

Last year's management hero, John Chambers has just apologised to Cisco shareholders for his firm's performance. Sacking 3,000 workers was "the worst thing I have ever done in my life" he said. But management was not to blame for current difficulties.

"The systems worked great - it was the rapid series of changes [in demand] that was a surprise to us," he said. "Make no mistake about it, we got hit on the head."

Well, fancy that. Demand has proved unpredictable. Technology, media and telecoms companies (the ultra hot, now fast cooling TMT sector) has been thrown into confusion by changing stock market sentiment. And the order books that seemed healthy have "suddenly" started looking less robust. Motorola, Cable & Wireless, Lucent, Ericsson and now Cisco have all been shedding staff; tens of thousands have been laid off.

Is this a meltdown? The Nikkei, the Dow Jones, Nasdaq and FTSE indices have all hit lows. Alan Greenspan has been cutting interest rates with something like abandon. Japan threatens to lead the Asia-Pacific region into slump. Exit the Goldilocks economy, pursued by three very angry bears.

However, all is not what it seems. In the seven weeks since George W Bush came into office on 20 January, the Financial Times reported this week, the US has created jobs at an average of more than 35,000 a week. In February 135,000 jobs were created. If this is a recession, what would a boom look like?

Stock market indices are a notoriously unreliable guide to measuring the health of an economy. They have more to do with traders' greed and fear. Anatole Kaletsky in The Times reminded his readers of this fact by quoting Paul Samuelson, the first American to win the Nobel Prize in economics. "Wall Street is very good at economic forecasting; it has predicted six of the last three recessions," Samuelson said in the late 1960s.

Creative destruction is at work. But any optimistic talk is banned in Washington at least, as the new administration fights to justify its massive $1.6bn tax cut. The business and financial community seems to be convincing itself that recession is on the cards and unavoidable.

Nothing happens "suddenly". The causes of floods, earthquakes and volcanic eruptions are years in the making. But the bubble of the "new economy" is being deliberately and violently punctured. Those must have been pretty strange recruitment decisions that led to tens of thousands of 'suddenly' redundant workers being hired in the first place.

Perhaps we are living through what some have called the first business cycle of the new economy. Certainly, John Chambers did not become a fool overnight. Maybe he really was just "hit on the head". Maybe we are in crazy times, as Tom Peters always says.

C K Prahalad concluded one recent talk with the Delphic comment: "Anyone who thinks they have the answer doesn't understand the question." Maybe he's right. You don't have to be crazy to manage in the new economy, but it just might help.

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