Professor of finance
Paris Dauphine University – PSL
*Member of the faculty of Business Science Institute.
Article originally published on The Conversation France.
This article is published as part of the first festival of the Revue Française de Gestion, "Finance, strategy, governance: 40 years of Revue Française de Gestion" organized on November 17, 2017 at the IAE of Grenoble in partnership with CERAG, The Conversation France and XERFI Canal Productions - The authors of the special issue of the RFG "Reconciling finance and management" published in 2009 and coordinated by Michel Albouy, were invited to speak on the theme: "A decade after the financial crisis: what view, what changes...?
Infinite is the indulgence of the author before his text. Even if 10 years separate the publication of the quoted article and its present rereading, the bias is that of a great tenderness in front of writings that we often try to find premonitory.
In addition, the theme addressed is time, more precisely the temporality of human action and the action of the company.
It is true that the first sentence is a rather brutal statement: "Time is both an economic resource and a dimension of choice". This statement is obviously still relevant today and concentrates the essence of the message.
Time in management has first of all a praxeological dimension; it is the manager's space for action that inscribes his choices and his intervention in a temporality. This temporality is often reflexive. This is not in itself new. It is the action/reaction of others, competitors, partners, that sets the pace. The 2009 article reminded us of this. What is new is probably that the pace is accelerating in a game of musical chairs where the tempo is getting faster.
This is a first addition that could be made. The sequentiality of the choices introduces an accelerating pace. The actors are more reactive and the partners are more reactive. This is the era of agile management. Added to this is a general context where the price of time is becoming - unheard of - zero. Interest rates are zero; there is no point in waiting to capitalize. The economic universe of zero interest rates makes this evolution towards immediacy much easier.
1. The era of agile management
The management concept that expresses this is agility. Agile project management is an attitude and a mode of organization that favors speed and responsiveness. It is initially linked to the mode of managing change and introducing innovation in the processing of unanticipated information and decision-making. The dominant image used is the rugby scrum, which designates a close-knit team that immediately confronts the others by seizing a difficulty to move forward. The team is constantly available and mobilized to solve problems and make choices. The permanent face-to-face contact counts more than the planning of pre-identified tasks that cascade down. Reactivity and iteration are permanent. The most effective exchange of information is face-to-face in an operations room. The written word, as well as the construction of a completed and capitalizable reflection, are secondary.
The ability to react is more important than the content of the reaction. We must act quickly without reserve or blinkers. The tempo of reflection, of mastering the rhythm, of waiting for the right moment is not a priority. Everything that has to do with "timing", which corresponds to the sense of strategic sequencing and the sense of the window of opportunity, is not dominant. You have to be on the lookout, i.e. reactive, to show that you are active, and therefore present.
It is a vision of immediacy that privileges the present as opposed to the idea of waiting for the right moment. Temporality introduces a dimension of mastery of the rhythm which means that we are ready, in human action as in the action of the company, to take time. This means procrastinating not systematically, but opportunely.
So the debate is agility vs. procrastination? How to decide if not by reminding that the control of rhythm is an argument of the strategic approach. Taking the time to react at the right moment is a luxury that only the strong can afford. The weak suffer from the rhythm of others. This means that time and the mastery of temporality have a strategic value that is denied by systematic immediacy. The expression of this dilemma in everyday language is simple and revealing: "It is better to wait", "Time is money". These aphorisms are well known. However, they underline the essential point: the price of time in the time of economic action is an interest rate for the company.
2. ... and zero interest rates
The "interest rate" as it appears on a market is an equilibrium price that gives the social price of temporality in economic choices. Nothing to say except that here is the irruption of an exogenous social price in the economic choices of local actors with their own timing. The temporality is that of the company's strategic choices in its small local world with its competitors, partners and stakeholders. The interest rate is the cost of using financial resources over time.
The radical novelty is the irruption of a price of social time at extravagant conditions: For nearly 10 years we have been living in a new and marvelous period of zero or even negative interest rates. The United States opened the ball by lowering the Fed's key rate to 0.25% in December 2008. Since then, Japan, the United Kingdom and the Eurozone have followed suit.
For various reasons that are beyond the scope of this article, the monetary policy of developed countries has led them to zero nominal money rates. It is even worse, they are negative: in the Eurozone, in order to deposit liquidity with the European Central Bank, banks must agree to pay a rate of 0.40% per year. It is even twice as bad, because if we take into account inflation that remains positive, real interest rates are currently negative by 0.5 to 1% per year.
The so-called quantitative easing or unconventional monetary policy is the immediate explanation for this phenomenon. What matters is the consequence of a social price of time on the pace of strategic corporate actions. Are zero interest rates economically sustainable for long? At what point do they induce excessively harmful biases in real savings, debt and investment behavior? This question is in the process of being resolved in the United States, with the exit from the zero interest rate "drug" and the return of monetary rates to a level compatible with productivity growth and the trend in inflation. There is no question here of getting into this debate.
Time is an economic resource, as we said in 2009. It is a space in which the company's action distils its effects. For example, new products need time to find their way to the consumer. Marketing specialists remind us that there are the precursors, the "early adopters", who react quickly to novelty, for whom novelty is in itself a value. There are also the "late comers", the followers, who are only informed later and who are out of step with time in a society in rupture where the metropolis divorces the periphery (Guilluy, 2014). In short, time is needed, and it remains a necessary resource for the unfolding of human action, and thus of economic action. Like any scarce economic resource, we therefore expect a positive price for time.
But zero interest rates are the negation of this phenomenon. They give the signal of a social price of time that introduces a devastating bias in favor of immediacy and agility. Zero interest rates artificially subsidize the present. Therefore, procrastinating is useless and deferring is useless. This is a great disservice to corporate strategy, because mobilizing economic resources is always costly and human action requires a time frame that is part of the game. Business management and strategic management are by definition a praxeology. They are not a video game. Management is a complex sequence whose rhythm is part of the problem to be imagined and solved. More than ever, strategic time has a cost. It is not the monetary interest rate.
We can't wait for the end of zero interest rates to give a clear signal and some order to the timing of economic actions. It is clear that this is not a matter of repeating the bleating of the German Central Bank, which insists that zero interest rates penalize aging German savers who have been robbed of their savings in banks. In terms of corporate financial management, zero interest rates are a stock market drug because the very low borrowing rates will lower the weighted average cost of capital of the company. All else being equal, this puts upward pressure on stock prices. This is very nice for stock market investors, but this subsidy of the price of time does not in itself create strategic value.
More than ever, what matters is to remember that strategic time has a price and that a zero social price of time introduces a bias in behaviors by favoring a quick reaction. The current bias towards immediacy distorts the richness of temporality.
Article translated from French with https://www.deepl.com/translator
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Hubert de la Bruslerie's articles on The Conversation France.
Hubert de la Bruslerie's books & articles via CAIRN.info.