Winning in a downturn: Six actions to take now

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July 9th 2008  Printer version



FROM THE BOSTON CONSULTING GROUP

According to many indicators, a recession is either looming or already here. Yet because the business landscape has changed so much since the last recession, in 2001, the defensive and offensive tactics that worked then may not work as well this time around.

For example, emerging low-cost competitors from China, India, and other rapidly developing economies are now in a position to gain market share and acquire assets from cost-heavy incumbents. Moreover, many companies that were burned in the last recession are savvier today, and their behavior may be tougher to predict in a new downturn.

Now is the time to get ready. In today’s global economy, the ripple effects of a downturn will be widely felt —whether the economic crunch occurs on one’s home turf or not. Also, a major downturn can fundamentally change the dynamics of an industry. Analysis by The Boston Consulting Group shows that after the last recession, 30 percent of the companies that had been among the top ten players in their respective sectors dropped off that list, and fewer than 10 percent of those that dropped off ever made it back. The reason is simple: a downturn magnifies relative strengths and weaknesses.

In bad times, the bar rises and only the fittest can clear it—so being healthy at the beginning of a downturn is important. Moreover, strong companies bounce back from tough times more quickly. Surprisingly, in spite of the warning signs, most companies don’t adequately plan ahead, often reacting to a downturn by embarking on a costly, damaging cycle of doing too much, too late, and too randomly. By avoiding this cyclical overshooting, companies can prevent harmful, excessive cuts during a downturn—and useless and costly spending in an upturn.

Companies that survive and thrive during tough economic times build advantages in three critical areas: mindset, preparation, and execution. First, although they grasp the potential downside of a downturn, they focus instead on the opportunity for major competitive gains. This positive mindset sets them apart. Second, they prepare by planning and prioritizing specific offensive and defensive measures. As a downturn emerges, this thoughtful preparation paves the way for quicker and more effective execution—the third critical area of advantage. If achieved, these three advantages can lead to a long-term competitive edge.


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The Boston Consulting Group
Source: The Boston Consulting Group