How to Emerge from this Recession Stronger than Before

An astounding 85 percent of growth leaders entering into a recession will emerge weaker, according to new research.

Only 9% come out stronger.

What do business do wrong?

• Firms that cut costs faster and deeper than rivals had the lowest probability — 21% — of pulling ahead of the competition post-recession.
• Businesses that invested aggressively more than competitors had only a 26% chance of becoming leaders after the downturn.

What works? A careful balance between the cutting costs and new spending, according to Harvard Business School researchers Ranjay Gulati and Nitin Nohria, and Northwestern University’s Franz Wohlgezogen who studied 4,700 companies during the last three recessions.

Specifically, the successful companies didn’t slash headcount. Instead, they focused on improving operational efficiency. They also were bigger investors than their rivals in developing new business with investments in R&D, marketing and in plants and machinery.

“The most successful reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets,” the researchers report. “Their multi-pronged strategy is the best antidote to a recession.”

Posted on July 27, 2010