27.08.

2018 Roaring Out of Recession

RECESSİON

Roaring Out of Recession

by Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen
FROM THE MARCH 2010 ISSUE

G reat leaders know that how they ght

ARTWORK: FELİCE VARİNİ, DRİLL HALL, 2008, SİNGAPORE BİENNALE,
SİNGAPORE
a war often dec des whether they w ll
w n the peace. Yet as CEOs cont nue
to combat the myr ad challenges thrown up by
the Great Recess on of 2007, they are
ncreas ngly unsure about what strateg c
approaches to deploy. Many worry that the 27-
month slowdown s far from over n the Un ted
States. Others feel that although a recovery may
have begun, t could prove to be short-l ved, and
they would do well to brace for a double-d p
recess on. Almost all bus ness leaders
reluctantly adm t that the current cr s s also
marks an nflect on po nt: The world after t s
unl kely to resemble the one before t. The r
pr or ty, when they get a moment’s resp te, must
be to remake the r organ zat ons to cope w th
the “new normal.” But CEOs, l ke generals n the
heat of battle, are so busy tackl ng short-term
pr or t es that the future s obscured by the fog
of war.

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 27.08.2018 Roaring Out of Recession
Unfortunately, l ttle research has been done on strateg es that can help compan es surv ve a
recess on, get ahead dur ng a slow-growth recovery, and be ready to w n when good t mes return.
Folksy w sdom abounds (how many t mes have you read that Procter & Gamble, Chevy, and
Camel flour shed dur ng the Great Depress on because they advert sed heav ly?), but emp r cal
stud es are few. That’s why we dec ded to mount a yearlong project to analyze strategy select on
and corporate performance dur ng the past three global recess ons: the 1980 cr s s (wh ch lasted
from 1980 to 1982), the 1990 slowdown (1990 to 1991), and the 2000 bust (2000 to 2002). We
stud ed 4,700 publ c compan es, break ng down the data nto three per ods: the three years
before a recess on, the three years after, and the recess on years themselves. (See the s debar
“Analyz ng Strategy Sh fts.”)

Our nd ngs are stark and startl ng. Seventeen

Analyzing Strategy Shifts percent of the compan es n our study d dn’t

In December 2008 we started a project surv ve a recess on: They went bankrupt, were
to identify the strategies that companies acqu red, or became pr vate. The surv vors were
deploy during economic downturns and
pa nfully slow to recover from the batter ng.
to evaluate their effectiveness. We
studied corporate performance during About 80% of them had not yet rega ned the r
the three recessionary periods prior to prerecess on growth rates for sales and pro ts
the current one: 1980 to 1982, 1990 to three years after a recess on; n fact, 40% of
1991, and 2000 to 2002.
them hadn’t even returned to the r absolute
We collected nancial data on all the
prerecess on sales and pro ts levels by the end
companies listed in Standard & Poor’s
Compustat database, analyzing 4,700 of that t me per od. Only a small number of
companies across the three recessions. compan es—approx mately 9% of our sample—
Using data for the three years prior to
flour shed after a slowdown, do ng better on key
each recession, the three years after it,
and the recession itself, we analyzed nanc al parameters than they had before t and
strategy shifts during the recession years outperform ng r vals n the r ndustry by at least
and developed hypotheses about how 10% n terms of sales and pro ts growth.
they had affected companies’
postrecession performance.
These postrecess on w nners aren’t the usual
To identify strategy shifts, we calculated
how companies’ resource allocations had suspects. F rms that cut costs faster and deeper
changed between the prerecession and than r vals don’t necessar ly flour sh. They have
the recession years, using six balance-
the lowest probab l ty—21%—of pull ng ahead of
sheet items: number of employees; cost
of goods sold normalized by sales; R&D the compet t on when t mes get better,
expenditures; sales, general, and accord ng to our study. Bus nesses that boldly
administrative expenditures; capital
nvest more than the r r vals dur ng a recess on
expenditures; and plant, property, and
equipment stock.
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don’t always fare well e ther. They enjoy only2/14
a
 Only major allocation changes affect a
27.08.2018 Roaring Out of Recession
26% chance of becom ng leaders after a
company’s performance, so we isolated
downturn. And compan es that were growth
those in two steps: rst, we calculated
changes from before to during each leaders com ng nto a recess on often can’t
recession and adjusted them for the reta n the r momentum; about 85% are toppled
industry average; second, we calculated dur ng bad t mes.
the percentile scores of those changes
and assumed that only those in the top
or bottom 33 percentile were signicant Just who are the postrecess on w nners? What
increases or decreases.
strateg es do they deploy? Can other
We identied four groups on the basis of corporat ons emulate them? Accord ng to our
specic combinations of changes in
research, compan es that master the del cate
resource allocation:
balance between cutt ng costs to surv ve today
Prevention-focused companies, which
had cut back further, relative to their and nvest ng to grow tomorrow do well after a
competitors, on one or more of the six recess on. W th n th s group, a subset that
items, and hadn’t increased expenditures deploys a spec c comb nat on of defens ve and
on any of them more than their
offens ve moves has the h ghest probab l ty—
competitors had.
37%—of break ng away from the pack. These
Promotion-focused companies, which
had increased expenditure on at least compan es reduce costs select vely by focus ng
one of the six and also not decreased more on operat onal e c ency than the r r vals
expenditure on any of them by more than do, even as they nvest relat vely
their rivals had.
comprehens vely n the future by spend ng on
Pragmatic companies, which had
market ng, R&D, and new assets. The r
adopted both a prevention focus, by
reducing COGS or employees more than mult pronged strategy, wh ch we w ll d scuss n
their peers had, and a promotion focus, the follow ng pages, s the best ant dote to a
by increasing SG&A, R&D, CAPX, or PP&E
recess on.
more than their peers had.
Progressive companies, which had
reduced COGS but hadn’t cut employees
Four Responses to a Slowdown
more than their peers and had also Compan es, not surpr s ngly, don’t all follow the
allocated more resources, relative to
same strateg es dur ng a recess on. That could
their competitors, to market-related
items such as SG&A and R&D and to be because of d fferences n execut ves’
asset-related items such as CAPX and cogn t ve or entat on dur ng a cr s s. Accord ng
PP&E.
to Tory H gg ns, a Columb a Un vers ty
We then calculated the three-year psycholog st, human be ngs are hedon st c—we
compound annual growth rates for net
avo d pa n and seek pleasure—but they d ffer n
sales and earnings (EBITDA as a
percentage of sales), adjusted for how they try to ach eve those a ms. There are
industry averages, to understand the two bas c modes of self-regulat on. Some people
top- and bottom-line performance
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 generated by these strategies. Using
27.08.2018 Roaring Out of Recession
are dr ven most by goals, such as ach evement,
growth rates allowed us to compare the
advancement, and growth. These promot on-
performance of big and small
companies; by adjusting for industry focused nd v duals are mot vated by deals and
averages, we could compare asp rat ons that prov de pleasure f real zed and
performance across industries even if the
d sappo ntment f not. Other people are
recession had affected them differently.
prevent on-focused—concerned ma nly w th
We concluded that companies with both
safety, secur ty, and respons b l ty. They str ve
sales growth and prots growth 10%
higher than those of competitors after a to avo d bad outcomes, exper enc ng rel ef f
recession had achieved breakaway they succeed and pa n f they fa l. S tuat ons
performance. (Our ndings are valid,
have a potent nfluence on cogn t ve or entat on:
however, for a broad range of denitions
of breakaway performance: growth rates A recess on, for example, can tr gger a response
from 5% to 20% better than the industry that overr des a person’s usual or entat on.
average.)
Finally, we calculated the probability By apply ng th s perspect ve to our emp r cal
that companies in each of the four
research, we were able to class fy compan es
groups would achieve breakaway
performance by dividing the number of and the r approaches to manag ng dur ng a
winning companies that had used a recess on nto four types:
certain strategy by the total number of
companies using that strategy.
Prevent on-focused compan es, wh ch make
pr mar ly defens ve moves and are more
concerned than the r r vals w th avo d ng losses
and m n m z ng downs de r sks.

Promot on-focused compan es, wh ch nvest more n offens ve moves that prov de ups de bene ts
than the r peers do.

Pragmat c compan es, wh ch comb ne defens ve and offens ve moves.

Progress ve compan es, wh ch deploy the opt mal comb nat on of defense and offense.

Let’s now analyze these groups.

What Are the Odds...
that companies in the four groups will Don’t Be Too Defensive
signicantly outperform their rivals (by
10% or more) on both top- and bottom-
line growth after a recession?
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 27.08.2018 Roaring Out of Recession
Confronted by a recess on, many CEOs sw ng
nto cr s s mode, bel ev ng that the r sole
respons b l ty s to prevent the company from
gett ng badly hurt or go ng under. They qu ckly
mplement pol c es that w ll reduce operat ng
costs, shr nk d scret onary expend tures,
el m nate fr lls, rat onal ze bus ness portfol os,
lower head count, and preserve cash. They also
postpone mak ng fresh nvestments n R&D,
develop ng new bus nesses, or buy ng assets
such as plants and mach nery. As a rule,
prevent on-focused leaders cut back on almost
every tem of cost and nvestment and reduce
expend tures s gn cantly more than the r
compet tors on at least one d mens on.

Sony, wh ch announced a cost-reduct on target

of $2.6 b ll on n December 2008, ep tom zes the
prevent on-focused approach. It plans to close several factor es and el m nate 16,000 jobs, and
w ll delay nvestments—such as bu ld ng a much-needed LCD telev s on factory n Slovak a— n ts
core electron cs bus ness. Th s strategy resembles the approach Sony took dur ng the 2000
downturn, when over a two-year per od the Japanese g ant cut ts workforce by 11%, ts R&D
expend tures by 12%, and ts cap tal expend tures by 23%. The cuts helped Sony ncrease ts
pro t marg n from 8% n 1999 to 12% n 2002, but growth n ts sales tumbled from an average of
11% n the three years before the recess on to 1% thereafter. In fact, Sony has struggled s nce
then to rega n momentum. It has nvested n develop ng new products such as electron c book
readers, gam ng consoles, and organ c l ght-em tt ng d ode TV sets, but nds tself bested n
those product categor es by Amazon, M crosoft and N ntendo, and Samsung, respect vely.

A focus solely on cost cutt ng causes several problems. One, execut ves and employees start
approach ng every dec s on through a loss-m n m z ng lens. A s ege mental ty leads the
organ zat on to a m low and keep both nnovat on and cost cutt ng ncremental. Two, nstead of
learn ng to operate more e c ently, the organ zat on tr es to do more of the same w th less. That
often results n lower qual ty and therefore a drop n customer sat sfact on. Three, cost-cutt ng
dec s ons become central zed: The nance department makes across-the-board cuts, pay ng l ttle
attent on to n t at ves that may be the nucle of postrecess on growth. Four, pess m sm
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permeates the organ zat on. Central zat on, str ct controls, and the constant threat of more cuts
bu ld a feel ng of d sempowerment. The focus becomes surv val—both personal and
organ zat onal.

Few prevent on-focused corporat ons do well after a recess on, accord ng to our study. They tra l
the other groups, w th growth, on average, of 6% n sales and 4% n pro ts, compared w th 13%
and 12% for progress ve compan es. Whereas n the three years after the 2000 recess on, sales for
the 200 largest compan es grew by an average of $12 b ll on over prerecess on levels, the
prevent on-focused enterpr ses among them saw sales grow by an average of just $5 b ll on.
Moreover, cost cutt ng d dn’t lead to above-average growth n earn ngs. Postrecess on pro ts for
prevent on-focused enterpr ses typ cally rose by only $600 m ll on, whereas for progress ve
compan es they ncreased by an average of $6.6 b ll on.

Don’t Be Too Aggressive

Some bus ness leaders pursue opportun ty even n the face of advers ty. They use a recess on as a
pretext to push change through, get closer to customers who may be gnored by compet tors,
make strateg c nvestments that have long-term payoffs, and act opportun st cally to acqu re
talent, assets, or bus nesses that become ava lable dur ng the downturn. These strateg es are
des gned to garner ups de bene ts.

At the he ght of the 2000 recess on, for example, Hewlett-Packard drew up an amb t ous change
agenda even though sales and pro ts were fall ng. Carly F or na, then the CEO, asserted, “In
blackjack, you double down when you have an ncreas ng probab l ty of w nn ng. We’re go ng to
double down.” HP embarked on a mass ve restructur ng program, made the largest acqu s t on n
ts h story by buy ng Compaq for $25 b ll on, and ncreased R&D expend tures by 9%. It also
spent $200 m ll on on a corporate brand ng campa gn and $1 b ll on on expand ng the ava lab l ty
of nformat on technology n develop ng countr es. These n t at ves stra ned the organ zat on
and spread top management’s attent on too th n. When the recess on ended, the company found
t tough to match the pro tab l ty levels of IBM and Dell. By 2004 HP’s earn ngs, at 8.4%, had
sl pped below IBM’s 16.8% and Dell’s 9.3%. (Throughout th s art cle, “pro ts” and “earn ngs”
refer to earn ngs before nterest, taxes, deprec at on, and amort zat on [EBITDA] as a percentage
of sales.)

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Organ zat ons that focus purely on promot on develop a culture of opt m sm that leads them to
deny the grav ty of a cr s s for a long t me. They gnore early warn ng s gns, such as customers’
budget cuts, and are steadfast n the bel ef that as long as they nnovate, the r sales and pro ts
w ll cont nue to r se. Even as customers clamor for lower pr ces and greater value for money,
these compan es add bells and wh stles to the r products. They s mply don’t not ce that because
the p e s shr nk ng, they must capture an even larger share from r vals to keep grow ng.
Opt m st c leaders attract employees who thr ve n a forward-look ng, growth-or ented
env ronment. When pos t ve groupth nk permeates an organ zat on, naysayers are marg nal zed
and real t es are overlooked. That’s why promot on-focused organ zat ons are often bl nds ded by
poor nanc al results.

When positive groupthink permeates an

organization, naysayers are marginalized and
realities are overlooked.
Worse, when these compan es are forced to tackle bloated cost structures, the changes they make
often prove to be too l ttle, too late. Because each funct on and bus ness rmly bel eves that t
contr butes to corporate success, nger-po nt ng ncreases. Trade-offs are d cult to make and
dec s on mak ng becomes sclerot c.

Whereas prevent on-or ented compan es lower the r cost-to-sales rat o by about three percentage
po nts relat ve to peers over the course of a recess on, promot on-focused enterpr ses are unable
to reduce that rat o. Promot on-focused CEOs somet mes ncrease expend tures rather than
cutt ng back, bel ev ng that th s w ll push them ahead. If nvestments take longer than expected
to generate paybacks, or nnovat ons don’t resonate w th customers, these compan es run
headlong nto trouble.

Desp te a focus on growth, promot on-focused compan es’ postrecess on sales and earn ngs r se
by only 8% and 6% respect vely, whereas those of progress ve compan es’ shoot up by 13% and
12%. Among the 200 largest compan es that tackled the 2000 recess on, promot on-focused
enterpr ses grew sales by $15 b ll on and pro ts by $1.5 b ll on, on average—far lower than
progress ve compan es’ average ncreases of $28 b ll on n sales and $6.6 b ll on n pro ts.

The Elusive Balance

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The compan es most l kely to outperform the r compet tors after a recess on are pragmat c as
W ll am James de ned the term: “The att tude of look ng away from rst th ngs, pr nc ples,
‘categor es,’ supposed necess t es; and of look ng towards last th ngs, fru ts, consequences, facts.”
The CEOs of pragmat c compan es recogn ze that cost cutt ng s necessary to surv ve a recess on,
that nvestment s equally essent al to spur growth, and that they must manage both at the same
t me f the r compan es are to emerge as postrecess on leaders.

A comb nat on strategy sounds easy to develop: a l ttle offense, a l ttle defense, and vo là, you’re
a w nner. If only t were that s mple. Compan es typ cally comb ne three defens ve approaches—
reduc ng the number of employees, mprov ng operat onal e c ency, or both—w th three
offens ve ones: develop ng new markets, nvest ng n new assets, or both. Th s y elds n ne
poss ble comb nat ons, some of wh ch are more effect ve than others. (See the exh b t “What’s
the Best Comb nat on of Moves?”)

One comb nat on has the greatest l kel hood of

What’s the Best Combination
of Moves?
Companies that focus simultaneously on
increasing operational efciency,
developing new markets, and enlarging
their asset bases show the strongest
performance, on average, in sales and
EBITDA growth after a recession.
(Percentages, which are adjusted for
industry averages, refer to the three-year
compound annual growth rate.)
produc ng postrecess on w nners: the one
pursued by progress ve enterpr ses. These
compan es’ defens ve moves are select ve. They
cut costs ma nly by mprov ng operat onal
e c ency rather than by slash ng the number of
employees relat ve to peers. However, the r
offens ve moves are comprehens ve. They
develop new bus ness opportun t es by mak ng
s gn cantly greater nvestments than the r
r vals do n R&D and market ng, and they nvest
n assets such as plants and mach nery. The r
postrecess on growth n sales and earn ngs s the
best among the groups n our study. It’s
mportant to understand why the compan es
that use th s comb nat on do so well after a
recess on.

Postrecession Leaders in
Sales and Prots Growth
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 27.08.2018 After a recession, progressive companies
Roaring Out of Recession

outperform pragmatic companies by

almost four percentage points in sales
and more than three percentage points
in earnings before interest, taxes,
depreciation, and amortization (EBITDA)
—and do about twice as well as
companies in general. (Percentages,
which are adjusted for industry averages,
refer to the three-year compound annual
growth rate.)

Click here for a larger image of the

graphic.

Operational efciency.
Most enterpr ses mplement aggress ve cost-reduct on plans to surv ve a recess on. But
compan es that attend to mprov ng operat onal e c ency fare better than those that focus on
reduc ng the number of employees. Don’t get us wrong: Progress ve compan es also lay off
employees, but they rely on that approach much less than the r peers do. Only 23% of
progress ve enterpr ses cut staff—whereas 56% of prevent on-focused compan es do—and they
lay off far fewer people.

Compan es that rely solely on cutt ng the workforce have only an 11% probab l ty of ach ev ng
breakaway performance after a downturn. There may be several reasons for th s. In our
exper ence, morale s usually better at compan es that stress operat onal e c ency. Employees at
these compan es apprec ate top management’s comm tment to them, and they are more creat ve
n reduc ng costs as a result. They don’t spend the r t me worry ng about job secur ty—as do
people at compan es that rely on deep staff cuts. And although layoffs may reduce costs qu ckly,
they make recovery more d cult. Compan es run the r sk of scal ng up too late, espec ally f
h r ng s more d cult than they ant c pated. People are loath to work for organ zat ons that
reduce head count n d cult t mes. Moreover, as these compan es reh re, costs shoot up.

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In contrast, compan es that respond to a slowdown by reexam n ng every aspect of the r bus ness
models—from how they have con gured supply cha ns to how they are organ zed and structured
—reduce the r operat ng costs on a permanent bas s. When demand returns, costs w ll stay low,
allow ng the r pro ts to grow faster than those of compet tors.

Dur ng the 2000 recess on, O ce Depot and Staples took d ffer ng approaches to cost
management. O ce Depot cut 6% of ts workforce, but t couldn’t reduce operat ng costs
s gn cantly. Although the company created an ncent ve plan to boost sales, ts sales growth fell
from 19% before the recess on to 8% after— ve percentage po nts below Staples’ postrecess on
sales growth rate.

By contrast, Staples closed down some underperform ng fac l t es but ncreased ts workforce by
10% dur ng the recess on, ma nly to support the h gh-end product categor es and serv ces t
ntroduced. At the same t me, the company conta ned ts operat ng costs and came out of the
recess on stronger, b gger, and more pro table than t had been n 1999. Its sales doubled, from
$7.1 b ll on n 1997 to $14.6 b ll on n 2003, wh le O ce Depot’s rose by about 50%, from $8.7
b ll on to $13.4 b ll on. On average, Staples was about 30% more pro table than ts archr val n
the three years after that recess on.

Staples closed down some underperforming

facilities but increased its workforce by 10%
during the 2000 recession.
Investment in both existing and new businesses.
Dur ng recess ons, progress ve compan es develop new markets and nvest to enlarge the r asset
bases. They take advantage of depressed pr ces to buy property, plants, and equ pment. Th s
helps them both dur ng the recess on and afterward, when they can respond faster than r vals to
a r se n demand. Because the r asset costs are lower than the r non nvest ng compet tors’, the r
earn ngs can be relat vely h gher.

Progressive companies stay closely connected

to customer needs—a powerful lter through
which to make investment decisions.
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These compan es also jud c ously ncrease spend ng on R&D and market ng, wh ch may produce
only modest bene ts dur ng the recess on, but adds substant ally to sales and pro ts afterward.
The resources freed up by mprov ng operat onal e c ency nance much of th s expend ture. In
turbulent t mes, t’s tough for compan es to know where to place the r bets for both the
mmed ate term and the long run. Progress ve compan es stay closely connected to customer
needs—a powerful lter through wh ch to make nvestment dec s ons.

Getting It Right
Pursu ng a Janus-faced strategy sn’t easy. Cutt ng budgets n one area wh le expand ng them n
another means expla n ng to those who are be ng asked to bear the burden of the former why the
company s spend ng where no mmed ate bene ts are apparent. It’s eas er to exhort everyone to
sacr ce and share the pa n or to show courage and nvest for ga n. To pull off a comb nat on of
cutbacks and strateg c nvestments, CEOs have to exerc se cost d sc pl ne and nanc al prudence
and detect opportun t es that offer rel able returns n reasonable payback per ods.

Let’s look at how one company has managed th s d cult balanc ng act. Dur ng the 2000
recess on, Target ncreased ts market ng and sales expend tures by 20% and ts cap tal
expend tures by 50% over prerecess on levels. It ncreased the number of stores t operated from
947 to 1,107 and added 88 SuperTarget stores to the 30 t had already set up. It expanded nto
several new merchand se segments, ramped up nvestment n cred t-card programs, and grew ts
nternet bus ness. The company made several smart cho ces along the way. Instead of try ng to go
t alone onl ne, Target partnered w th Amazon to sell ts products. It also teamed up w th well-
known des gners such as M chael Graves, Ph l ppe Starck, and Todd Oldham to cement ts
reputat on for cheap ch c, thereby d fferent at ng ts products.

Meanwh le, Target relentlessly tr ed to reduce costs, mprove product v ty, and enhance the
e c ency of ts supply cha n operat ons. For nstance, n 2000 t was one of the 12 reta lers that
founded the WorldW de Reta l Exchange, a global bus ness-to-bus ness electron c marketplace,
to fac l tate trad ng between reta lers and vendors. In January 2001 Target consol dated ts
Dayton’s and Hudson’s stores under Marshall F eld’s to take advantage of the well-known brand
name. These moves helped the company grow sales by 40% and pro ts by 50% over the course of
the recess on. Its pro t marg n ncreased from 9% n the three years before the recess on to 10%
after t.

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These strateg es contrast sharply w th those of other reta lers, wh ch focus pr mar ly on grow ng
store networks. For example, the d scount reta ler TJX Compan es, wh ch operates T.J. Maxx and
Marshalls, added 300 stores to ts network of 1,350 from 2000 to 2002, ncreas ng ts reta l square
footage by almost 25% and nearly doubl ng ts cap tal expend tures. TJX’s compet tors were
scal ng back growth plans, so real estate opt ons were more plent ful and pr ces were lower.
Although the ncrease n reta l floor space fueled some healthy med um-term sales growth—four
percentage po nts above peers’ growth n the postrecess on per od— t d dn’t mprove the bottom
l ne. That’s because TJX d d l ttle to change ts bus ness model; t just scaled up ts central zed
buy ng and flex ble d str but on of merchand se. Th s more-of-the-same approach put TJX’s
bottom-l ne growth, wh ch had been on a par w th r vals’ before the recess on, at 9% lower three
years afterward.

Many CEOs nd nvest ng n barga n-basement assets a tempt ng offens ve move n a downturn.
But the revenues and pro ts from opportun st c nvestments can take a long t me to mater al ze,
leav ng a company saddled w th an asset base that doesn’t s gn cantly boost returns. As TJX
found, focus ng purely on assets also keeps compan es from look ng for more- mag nat ve ways
to bu ld new bus nesses that w ll dr ve growth when the recess on s over.

Target hasn’t faced th s problem. Dur ng the current recess on, the reta ler n t ally saw a decl ne
n same-store sales, n part because Wal-Mart’s message of everyday low pr ces went down well
w th customers. Real z ng that spend ng on “wants” was decreas ng sharply, Target strengthened
ts pos t on n a key “needs” segment: food. It launched a new store format that doubles the
amount of floor space devoted to food; extended the range of ts food brands, Market Pantry and
Archer Farms; and overhauled ts operat ons to support the emphas s on food. The reta ler also
ncreased med a spend ng and rea rmed ts pos t on ng w th the slogan “Expect more, pay
less”—w th an emphas s on the second half. These are early days, but the results appear
prom s ng: By 2008 Market Pantry’s sales had ncreased by 30% and Archer Farms’ by 13%. And
food has become a $1.8 b ll on bus ness for Target.

Few progress ve bus ness leaders have a master plan when they enter a recess on. They
encourage the r organ zat ons to d scover what works and comb ne those nd ngs n a portfol o
of n t at ves that mprove e c ency along w th market and asset development. Th s ag l ty, even
as leaders hold the course toward long-term growth and pro tab l ty, serves organ zat ons well
dur ng a recess on. An analys s of the stock market performance of compan es that use

https://hbr.org/2010/03/roaring-out-of-recession 12/14
 27.08.2018 Roaring Out of Recession
progress ve strateg es reveals that they can also r de the momentum after a recess on s over.
The r approach doesn’t just combat a downturn; t can lay the foundat on for cont nued success
once the downturn ends.

A version of this article appeared in the March 2010 issue of Harvard Business Review.

Ranjay Gulati is the Jaime and Josena Chua Tiampo Professor of Business Administration,
the head of the organizational behavior unit, and the chair of the Advanced Management Program
at Harvard Business School.

Nitin Nohria is dean of Harvard Business School.

Franz Wohlgezogen (f-wohlgezogen@kellogg.northwestern.edu) is a doctoral student at Northwestern University’s

Kellogg School of Management.

This article is about RECESSİON

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Related Topics: COMPETİTİON | STRATEGY

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Kenneth
27.08.2018 Yeung 3 years ago Roaring Out of Recession

Insightful research, in particular the folly of HP's Carly Fiorina playing black jack with other people's money. A key
reason why 80% of the companies didn't come out better is attributed to the masochistic behaviours of CEOs and
their " golden parachute contracts". This hasn't change post 2008 and impending developments in the next
couple of years will validate your ndings again.

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