In 2010 Harvard Business Review studied 4,700 public companies’ performance during the past three global recessions (1980, 1990, 2000) breaking down the data into three periods: the three years before a recession, the three years after, and the recession years themselves.
The full article can be found here:
It’s a great article with quite a lot to learn from the past.
“The past is a horrible master but a great teacher.”
-Unknown
-Unknown
Let’s look at the article by the numbers:
- 17% of the companies in the study didn’t survive a recession: They went bankrupt, were acquired, or became private.
- About 80% of the surviving companies had not yet regained their pre-recession growth rates for sales and profits three years after a recession.
- 40% of the surviving companies did not return to their pre-recession sales and profits levels three years after a recession.
- 9% of the companies flourished after a slowdown, doing better on key financial parameters than they had before it and outperforming rivals in their industry by at least 10% in terms of sales and profits growth.
- Firms that cut costs faster and deeper than rivals don’t necessarily flourish. They have the lowest probability, 21%, of pulling ahead of the competition when times get better.
- Businesses that boldly invest more than their rivals during a recession don’t always fare well either. They enjoy only a 26% chance of becoming leaders after a downturn.
- Companies that were growth leaders coming into a recession often can’t retain their momentum; about 85% are toppled during bad times.
- Companies typically combine three defensive approaches—reducing the number of employees, improving operational efficiency, or both—with three offensive ones: developing new markets, investing in new assets, or both. This yields nine possible combinations, some of which are more effective than others.
- Few prevention-focused corporations do well after a recession, according to our study. They trail the other groups, with growth, on average, of 6% in sales and 4% in profits
- Despite a focus on growth, promotion-focused companies’ post-recession sales and earnings rise by only 8% and 6% respectively.
The Winning Combination (Cost Cutting + Innovation)
One combination has the greatest likelihood of producing post-recession winners: the one pursued by progressive enterprises. They cut costs mainly by improving operational efficiency rather than by slashing the number of employees relative to peers. However, their offensive moves are comprehensive. They develop new business opportunities by making significantly greater investments than their rivals do in R&D and marketing, and they invest in assets such as plants and machinery. Their post-recession sales and earnings jump to 13% and 12% respectively.
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