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(originally published by Booz & Company)


A “Hands-on” Approach to Surviving the Recession

S+B: So it’s a matter of constantly assessing and reassessing your position?
ELMAN: Yes, it’s a question of making your best judgment. We also have to make sure that our production assets are world class and produce the best of class. The production rates have to be absolutely phenomenal. We developed these capabilities over a long period of time, and I think the biggest distinguishing factor is risk management. We understand risk. We like to buy and sell it. For example, if I buy a cargo of steel, I have a delivery risk, a price risk, a customer risk, and so on. If I know the risks well enough, I can set my prices accordingly. And that’s a fundamental driving force of the company.

Globally, we have 42 full-time employees focused entirely on risk assessment. And they are layered with 25 people who do original research. As a result, we get a lot of guidance and control. We know what’s happening on a daily basis and that’s how we make decisions; it’s as simple as that. We check the profit and loss figures for our operations every day, and we get a value at risk — for the company as a whole and for individual businesses — every day.

We have to consider every morning that our business is fragile, and that it can break very easily. So you’d better look at all the risks and make sure that they’re mitigated as much as possible. If we see something we don’t like, we immediately suggest to the people in charge that they do something else. If there’s no margin in crushing soybeans today, we will slow down the crushing. Or we might even stop the crushing for a week or two. However, if the margin is good, we go full blast. We run 25 different businesses here, and it’s a whole bunch of verticals.

S+B: How are you positioning your company for growth during the current global downturn?
ELMAN: Right now, we’re hiring a lot of people. I think we’re one of the few companies in the world that have been hiring people at this pace in the last couple of months. We’re continuing our education programs, even though they’re expensive. We’re continuing to hire business school graduates — we’re not the only company doing this, but we’re one of the few that do it en bloc.

I’ve often thought about why our chain works and other companies’ don’t. If I were an auto manufacturer, and all I produced were cars, I would have a problem today. But I produce maybe 30 percent of what I trade. So even if marginally one of my assets is impaired or squeezed from a profit point of view, I still have the other businesses. I trade other people’s cars, to put it simply. And that’s a big difference. Because we have a strong ability to take market share, we continue to grow our business when others might be declining.

I also happen to be in businesses that are recession-proof. No matter what, people have to eat. They may eat less or eat cheaper, but they still eat. And despite the global recession, there is still some growth in the world, particularly in Asia. I think the Asian economies are in far better shape than the U.S. economy, and the Asian banks are certainly not in as bad shape as most U.S. banks.

S+B: What about opportunities for growth through M&A?
ELMAN: We haven’t bought any businesses. We’ve bought assets, usually distressed assets, and have built businesses around them. I think that is a fundamentally sound approach. Our company is pursuing growth the hard way, and it takes much longer than growing through M&A. At one point, we bought the inventory of a company, and a number of its employees joined us. But within 24 months we didn’t have a single one of those people left. The company was in liquidation because of its culture. This episode made us realize that, if we’re going to make mistakes, let’s do it ourselves in our own culture.

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  1. Ram Charan, “Sharpening Your Business Acumen,” s+b, Spring 2006: Incorporating external trends into your strategic position.
  2. Yoshiyuki Kishimoto, Hiroyuki Sawada, and Chieko Matsuda, “Japan: Lessons from a Lost Decade,” s+b, Spring 2009: One context for viewing Noble’s success: a difficult time for all commodities businesses.
  3. Alfonso Martinez and Ronald Haddock, “The Flatbread Factor,” s+b, Spring 2007: One set of trends promoting Noble’s business may be the life cycle of emerging markets.
  4. C.K. Prahalad and Hrishi Bhattacharyya, “Twenty Hubs and No HQ,” s+b, Spring 2008: Another model for responsive corporations.
  5. Sheridan Prasso, “Ambassador for the Asian Century,” s+b, Spring 2008: Profile of Singaporean diplomat Kishore Mahbubani on the rising tide of business in Asia. 
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