Reaction on Creating Value out of Inflation

Most of us have heard or are familiar with the term inflation. However, this familiarity does not easily translate to full comprehension of the practical applicability of such concept. The article explained the economic concept of inflation in relation to financial impact on firms. The use of simple illustrations made the article easy to comprehend.

The article is subdivided into three parts: (1) an operational definition of the concept as well as the factors that drives the concept, (2) major impacts of inflation in business, (3) how to cope up with inflation. This sequence of presentation is logical since it is essential to build the concept first before knowing how it could affect the business. Only upon knowing the impact or potential problems can we devise solutions to address it.

In my opinion, the most important part of the article is the admission that we cannot stop inflation and that the most that we can do is to manage its impacts. We have to be aware of the indicators in order to predict or forecast inflation. This is the main reason why firms nowadays have shifted to risk management as a primary consideration in its central strategic function.

In a financial perspective, the ultimate response to minimize the impact of inflation is through cost efficiency and asset maximization. We need to be aware of our costs in order to manage it. The ultimate objective in cost minimization is actually the elimination of non-value activities of the company. Meanwhile, asset maximization talks more on how we can effectively and efficiently use company's resources. The ultimate goal is to eliminate idle assets. This would involve better inventory and accounts receivable management. Since inventory and accounts receivable are carried at cost, the longer its cash conversion cycle means the lesser its value would become.

One important proposition in the article is the significant role played by individuals in an inflationary economy. No matter how sound the plans and policies of the company are, if individuals within the firm do not make a commitment to it then it becomes useless. So, it is important to properly communicate the objective across the firm.

Ultimately, the article, although it focuses on businesses, is also applicable to us as individuals. In an inflationary economy, it is important that we too are aware of our personal expenses and how we manage it. It is also important to know our assets and how to efficiently use it.

To sum up, Inflation exists and might be uncontrollable given the current economic and global political conditions. It could create problems and could threaten the very existence of an entity. That is why it is important to devise solutions through value creation within an organization.