Managing in a Downturn: Don't Retreat

Post 3 in the series: Managing in a Downturn

We saw in the previous post that recessions are actually intense crucibles of opportunity. But you will be unable to capitalize on this opportunity unless you retain the faith that you will prevail despite the brutal facts (the Stockdale Paradox) and take ownership of your situation instead of focusing on the systemic problems.

A critical corollary of these realities is: Don’t retreat.

It can be tempting to think that recessions should be treated like hurricanes. You don’t go outdoors. You go indoors and retreat. Or, if it’s bad enough, leave town altogether.

But if you do this in a recession — if you treat it like a hurricane and hunker down — your strategy will backfire.

The Harvard Business Review article that I quoted previously goes on to say:

Many managers tolerate subpar results during a recession, believing that their firms will accelerate past competitors once the economy recovers. This rarely happens [emphasis added]. More than two-thirds of the companies that made major gains in our study period did so during a recession, not before or after [emphasis added again].

The authors give Dell as an example of a company that took intelligent action in light of the recession:

In 2001, Dell Computer grew unit sales by 11% even as industry sales declined 12%. Realizing that price elasticity sometimes increase during a recession, Dell used sensible price cuts to gain more than six points in U.S. market share and, in the toughest period of all — the fourth quarter of 2001 — to capture more than 90% of the profits in its industry.

Such opportunities always exist for strong companies, but the impact of exercising them is much higher during a recession, when many competitors are either distracted or hibernating.

In other words, one of the reasons that recessions present such an opportunity is precisely because most of your competitors are hunkering down or losing focus. Don’t fall into that trap, and you can advance. (Even if you are a non-profit, where your competition is not always another non-profit, but perhaps something less tangible — apathy, for example? — or time and attention and dollars spent on other things generally.)

Another reason you don’t want to hibernate in a recession is that “gains or losses made during a recession tend to endure.” As the article points out:

Of the firms that made major gains in revenue or profitability during the last recession, more than 70% sustained those gains through the next boom cycle. The corollary was also true: fewer than 30% of those that lost ground were able to regain their positions.

So if you advance during a recession, you are likely to hold that ground. But if you lose ground, you are unlikely to recover it.

In sum: Don’t retreat.

And here’s a post I wrote last January that says a bit more on thus: Recessions are Not for Hunkering Down.

Posts in This Series

  1. Managing in a Downturn: An Introduction
  2. Managing in a Downturn: The Good News
  3. Managing in a Downturn: Don’t Retreat
  4. Managing in a Downturn: Don’t Overreact
  5. Managing in a Downturn: Be Careful of Cost-Cutting Campaigns
  6. Managing in a Downturn: Keep Making Meaning
  7. Managing in a Downturn: It’s Time to Hire
October 29, 2009 | Filed Under Management | 1 Comment 

Comments

  • Max

    But how companies with weaker financial backing can compete with such large corporations? They just go bankrupt