The Idea in Brief
What strategies can companies use to survive a recession so that they’ll thrive when it ends? A yearlong study suggests that enterprises that cut costs by focusing on operating efficiency even as they spend more than rivals on marketing, R&D, and assets are likely to be postrecession winners.
Companies that only cut costs heavily during a downturn don’t flourish after it ends. Neither do the few businesses that only invest more than rivals during a recession. Even companies that were doing well beforehand don’t retain their momentum—85% of market leaders get dislodged during a recession.
Cutting costs while making investments isn’t easy. CEOs must be disciplined about costs and learn to spot investment opportunities that offer reliable returns in reasonable payback periods. If they get the mix right, it helps them tackle short-run problems and create a successful medium-term strategy.
Great leaders know that how they fight a war often decides whether they will win the peace. Yet as CEOs continue to combat the myriad challenges thrown up by the Great Recession of 2007, they are increasingly unsure about what strategic approaches to deploy. Many worry that the 27-month slowdown is far from over in the United States. Others feel that although a recovery may have begun, it could prove to be short-lived, and they would do well to brace for a double-dip recession. Almost all business leaders reluctantly admit that the current crisis also marks an inflection point: The world after it is unlikely to resemble the one before it. Their priority, when they get a moment’s respite, must be to remake their organizations to cope with the “new normal.” But CEOs, like generals in the heat of battle, are so busy tackling short-term priorities that the future is obscured by the fog of war.