Because a recession usually brings lower sales and therefore less cash to fund operations, surviving a downturn requires deft financial management. Rebecca Henderson (of Harvard Business School) likes to remind her students, “Rule one is: Don’t crash the company.” That means, first and foremost, don’t run out of money. The underlying message across all areas is that recessions are a high-pressure exercise in change management, and to navigate one successfully, a company needs to be flexible and ready to adjust. Some of the most interesting findings deal with four areas: debt, decision making, workforce management, and digital transformation. In some cases, they cement conventional wisdom in others, they challenge it. How should a company prepare in advance of a recession and what moves should it make when one hits? Research and case studies examining the Great Recession shed light on those questions. “When the downturn hit, they switched to survival mode, making deep cuts and reacting defensively.” Many of the companies that merely limp through a recession are slower to recover and never really catch up.ĭecentralized firms were better able to adjust to changing conditions. Among the companies that stagnated in the aftermath of the Great Recession, “few made contingency plans or thought through alternative scenarios,” according to the Bain report. A third study, by McKinsey, found similar results.
The top 10% of companies in Bain’s analysis saw their earnings climb steadily throughout the period and continue to rise afterward. A more recent analysis by Bain using data from the Great Recession reinforced that finding. But just as striking, 9% of the companies didn’t simply recover in the three years after a recession-they flourished, outperforming competitors by at least 10% in sales and profits growth. In their 2010 HBR article “Roaring Out of Recession,” Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen found that during the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies they studied fared particularly badly: They went bankrupt, went private, or were acquired. But research shows that there are ways to mitigate the damage. Most firms suffer during a recession, primarily because demand (and revenue) falls and uncertainty about the future increases. Recessions-defined as two consecutive quarters of negative economic growth-can be caused by economic shocks (such as a spike in oil prices), financial panics (like the one that preceded the Great Recession), rapid changes in economic expectations (the so-called “animal spirits” described by John Maynard Keynes this is what caused the dot-com bubble to burst), or some combination of the three. Had the bubble burst just a few weeks earlier, one of the most successful companies ever might have fallen victim to that recession. More than half of all digital start-ups went out of business over the next few years-including lots of Amazon’s then-rivals in e-commerce. One month later, the dot-com bubble burst. In early 2000, a five-year-old online bookseller called sold $672 million in convertible bonds to shore up its financial position. How should firms prepare for a recession, and what should they do when one hits? This research roundup examines advice in four areas: debt, decision making, workforce management, and digital transformation. “When the downturn hit, they switched to survival mode, making deep cuts and reacting defensively.” But just as striking, 9% of the companies flourished, outperforming competitors by at least 10% in sales and profits growth.Ī more recent analysis by Bain using data from the Great Recession reinforced that finding, showing that the top 10% of companies studied didn’t merely survive their earnings climbed steadily throughout the downturn and continued to rise afterward.Īmong the companies that stagnated in the aftermath of the Great Recession, few had made contingency plans, according to the Bain report.
According to an analysis led by Ranjay Gulati, during the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies studied fared very badly: They went bankrupt, went private, or were acquired.
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