Who are the companies that thrive after times of economic hardship? The Harvard Business Review conducted an extensive study of that very question during the peak of the last “great” recession. As we now face a growingly uncertain economic picture, considering what they found may be of use today.
By Eric Herman
Is a recession on the way? Although no one knows for sure, there are signs the economy may be headed in that direction with home prices starting to fall, continued inflation, rising interest rates, the labor shortage and a host of other troubling indicators. At the same time, gas prices are steadily falling, supply lines are normalizing and unemployment is low – the die is far from cast.
Whether or not these economic trends will have a major impact on the watershaping industry also remains unseen. Demand for the industry’s products has remained resilient as many designers and builders report they remain busier than ever. The wave of business spawned by the isolation of the pandemic has not yet waned.
That does not mean it won’t. Most people in the industry, at least those of us of a “certain age”, remember all too well the precipitous fall of 2008 and how demand for watershapes of all types in a matter of a few months fell from all-time highs to disastrous lows. The real estate bubble of the aughts burst, home equity disappeared, and the industry dramatically contracted, taking many years to recover.
We know that economics are cyclical and even if we’re not headed toward that kind of catastrophic change we saw nearly 15 years ago, it’s safe to assume at some point we will once again face a downturn. There are those who would argue it’s closer than we think but we just don’t know it yet.
While crystal balling is always fraught with peril, looking back at lessons learned can be invaluable in thinking about the prudent measures and strategies companies might consider in plotting a course through potentially lean times.
Back in March 2010, during the peak of the last recession, the Harvard Business Review published a fascinating report about its analysis of more than 4,700 companies’ strategies during the prior three major recessions, 1980-1982, 1990-1991 and 2000 to 2002, analyzing data in three-year increments, before during and after the respective downturns.
Some of the findings were surprising. HBR found that both companies that aggressively cut spending as well as those the heavily invested were among those with the worst results and the least chance of survival, let alone flourishing post-recession. Who fared best?
“According to our research, companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow do well after a recession. Within this group, a subset that deploys a specific combination of defensive and offensive moves has the highest probability—37%—of breaking away from the pack. These companies 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.”
Achieving a balance is far easier said than done. The referenced article goes into a fairly in-depth analysis of some of the strategies successful companies deploy and the pitfalls they face, especially by making overly simplistic assumptions. Recessions challenge business owners in a variety of ways and there will always be widespread opinions of what does and doesn’t work.
Every industry is different, as is every company, and everyone plots their own course in good times and bad. Perhaps the prudence of commonsense dictates looking to the future, ultimately means thinking about it today.
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