Questions Recoloured

The Most Successful Strategies for Recovery and Growth After a Global Crisis

By Brian Shaw - May 26, 2020

History Helps Identify the Most Successful Strategies 

In 2010 Harvard Business Review analysed the strategies chosen by corporates during the previous three global recessions and the corporate performance before, during and after each one.  The crises studied were the 1980 crisis (which lasted from 1980 to 1982), the 1990 slowdown (1990 to 1991), and the 2000 bust (2000 to 2002). They studied 4,700 public companies, breaking down the data into three periods: the three years before a recession, the three years after, and the recession years themselves.


The findings from this research is described by HBR as “stark and startling”.

  • 17% of the companies studied did not survive a recession: They went bankrupt, were acquired, or became privatised
  • About 80% of survivors had not regained their pre-recession growth rates for sales and profits three years after a recession
  • 40% of them had not even returned to their pre-recession sales and profits levels three years afterwards.
  • But 9% of the sample flourished after a slowdown, doing better on key financial parameters than they had before it and outperforming rivals in their industry by at least 10% in terms of sales and profits growth.

The strategies of the survivors had varying degrees of success:

  • Firms that cut costs faster and deeper than rivals did not necessarily flourish. They had the lowest probability—21%—of pulling ahead of the competition when times got better.
  • Businesses that boldly invested more than their rivals during a recession did not always fare well either. They enjoyed only a 26% chance of becoming leaders after a downturn.
  • Companies that were growth leaders coming into a recession often could not retain their momentum. About 85% of these were- toppled during bad times.

The most successful companies were those that balanced cutting costs to survive today and investing to grow tomorrow.  

Companies typically adopt one of four strategies in response to a crisis. The strategy chosen is primarily determined by the approach that the leadership have to risk and return and to their management style.

Prevention-focused companies make primarily defensive moves, relative to their peers, and are more concerned with avoiding losses and minimising downside risks.  They quickly implement policies that will reduce operating costs, shrink discretionary expenditures, eliminate frills, rationalise business portfolios, lower head count, and preserve cash.

They also postpone making fresh investments in R&D, developing new businesses, or buying assets such as plant and machinery. As a rule, prevention-focused leaders cut back on almost every item of cost and investment and reduce expenditures significantly more than their competitors on at least one dimension.  This focus solely on cost cutting causes several problems:

  • Executives and employees start approaching every decision through a loss-minimising lens. A siege mentality leads the organisation to aim low and keep both innovation and cost cutting incremental.
  • Instead of learning to operate more efficiently, the organisation tries to do more of the same with less. That often results in lower quality and therefore a drop in customer satisfaction.
  • Cost-cutting decisions become centralised: The finance department makes across-the-board cuts, paying little attention to initiatives that may be the nuclei of post-recession growth.
  • Pessimism permeates the organisation. Centralisation, strict controls, and the constant threat of more cuts build a feeling of dis-empowerment. The focus becomes survival—both personal and organisational.

Few prevention-focused corporations do well after a recession, according to the HBR study. They trail the other groups, with growth, on average, of 6% in sales and 4% in profits, compared with 13% and 12% for progressive companies. 

Promotion-focused companies invest more in offensive moves that provide upside benefits.  They take a somewhat counter-intuitive approach and pursue opportunity even in the face of adversity. They use the recession as a pretext to push change through, to get closer to customers who may be ignored by competitors, make strategic investments that have long-term payoffs, and act opportunistically to acquire talent, assets, or businesses that become available during the downturn. These strategies are designed to garner upside benefits.

These organisations focus purely on promotion. They develop a culture of optimism that leads them to deny the gravity of a crisis for a long time. They ignore early warning signs, such as customers’ budget cuts, and are steadfast in the belief that as long as they innovate, their sales and profits will continue to rise. Even as customers look for lower prices and greater value for money, these companies add bells and whistles to their products. As the pie gets smaller the only way they can keep growing is to grow their market share.

Optimistic leaders attract employees who thrive in a forward-looking, growth-oriented environment. When positive group-think permeates an organisation, critics are marginalised and realities are overlooked. That is why promotion-focused organisations are often blindsided by poor financial results.

Their solutions are skewed towards long term returns. The need for these to be balanced with solutions to short term problems such as revenue, cash-flow and customer retention is underplayed and they run into problems.

Worse, when forced to tackle costs, the changes they make often prove to be too little, too late. Because each functional and business unit firmly believes that it contributes to corporate success, finger-pointing increases, trade-offs are difficult to make and decision making loses its ability to adapt to what is needed.

The resulting performance is poor. Whereas prevention-oriented companies lower their cost-to-sales ratio by about 3% relative to peers over the course of a recession, promotion-focused enterprises are unable to reduce that ratio. Promotion-focused CEOs are inclined to increase expenditures rather than cutting back, believing that this will push them ahead. If investments take longer to generate paybacks than expected, or innovations don’t resonate with customers, these companies run headlong into trouble.

Despite a focus on growth, promotion-focused companies’ post-recession sales and earnings rise by only 8% and 6% respectively, whereas those of progressive companies’ shoot up by 13% and 12%.

Pragmatic companies combine both defensive and offensive initiatives throughout the recovery cycle and are the most likely companies to outperform their competitors after a recession.  The CEOs of pragmatic companies recognise that cost cutting is necessary to survive a recession, that investment is equally essential to spur growth, and that they must manage both at the same time if their companies are to emerge as post-recession leaders.


These companies typically select from three defensive approaches and combine them with up to three offensive ones. 


Defensive Strategies    Offensive Strategies
Reduce the number of employees Develop new markets
Improve operational efficiency Invest in new assets
Both of the above Both of the above

This gives nine possible strategy combinations, each of which deliver a different level of success.  

So which combination has the greatest likelihood of post-recession success?

Strategy Table

Progressive companies pursue the combination of defensive and offensive strategies that have the highest probability (37%) of producing post-recession winners:

  • improving operational efficiency
  • investing in market development
  • asset investment

Their post-recession growth in sales and earnings is the best among the groups in the HBR study.

Compared with their competitors, their cost cutting moves are done mainly by improving operational efficiency rather than by slashing the number of employees.

Their offensive moves are wide ranging. They develop new business opportunities by making significantly greater investments in R&D and marketing and they invest in assets such as plants and machinery.

Why do the companies that use this combination do so well after a recession?

1. Improving operational efficiency works better than reducing employee numbers

Most enterprises implement aggressive cost-reduction plans to survive a recession but companies that focus on improving operational efficiency fare better than those that focus on reducing the number of employees because these cost reductions have fewer downsides and are permanent. Whilst layoffs may reduce costs quickly, as companies rehire during recovery, costs increase again.

Whilst progressive companies do also lay off employees, they rely on that approach much less than their peers do.

Only 23% of progressive enterprises cut staff—whereas 56% of prevention-focused companies do—and they lay off far fewer people.  Companies that rely solely on cutting the workforce have only an 11% probability of achieving breakaway performance during the recovery.

There may be several reasons for this:  

  • Companies that focus on performance outcomes through operational efficiency have probably always had this focus and have established this approach as part of their culture. Employees at these companies appreciate top management’s commitment to them, are more engaged with the business and prepared to go the extra mile to help it do well.
  • Talent, industry knowledge and skills are retained and employees are more likely to be used to looking for options and ideas on how they can improve the way things are done. The company is also more likely to have recognised the value of giving people and teams the tools necessary to make it easy for them to connect and collaborate with others and the authority to use them.
  • Today, cloud-based technology tools are available that make it easy to agree goals with people and teams, hold on-line conversations with them about their progress towards them and help them overcome problems in achieving them. These tools allow the creation of a learning environment where people can discuss and plan the acquisition of new skills and knowledge by linking with on-line learning platforms. Companies that use these tools outperform their competitors on almost every business metric.
  • Smaller, cross-functional teams connected together as a network of teams and coordinated at the top provide greater agility and utilise a broader range of talent from across the organisation. Decision making is faster and hard-wired to implementation
  • Companies who have drastically reduced headcount find it difficult to scale up as recovery occurs, especially if the employment brand has been damaged and hiring has become more difficult. People are reluctant to work for organisations that have a culture of reducing head count in difficult times.
  • Cost improvements achieved by improving operational efficiency are permanent.

Most importantly, companies that respond to a slowdown by re-examining every aspect of their business models—from how they have configured supply chains to how they are organised and structured—reduce their operating costs on a permanent basis. When demand returns, costs will stay low, allowing their profits to grow faster than those of competitors.  Costs saved through reducing headcount are lost as rehiring increases.

2. A Strong balance sheet and cash-flow creates the head-space for astute investment in marketing, R&D and assets

Companies that move faster and further to reduce debt, improve cash-flow before and during recessions create the ability to invest in developing new markets and enlarging their asset base. Focusing the network of teams on creating this head-space is a critical early activity of the recovery transformation and by engaging a broad cross section of the organisation in it progress can be made much more quickly.

These companies take advantage of depressed prices to buy property, plant and equipment. This helps them both during the recession and afterwards, when they can respond faster than competitors to a rise in demand. Because they can acquire assets at lower costs are lower than their non-investing competitors, their earnings can be relatively higher.

These companies also judiciously increase spending on R&D and marketing.  While this may produce only modest benefits during the recession, it adds substantially to sales and profit during recovery. The resources freed up by improving operational efficiency finance much of this expenditure.

In turbulent times, it is tough for companies to know where to place their bets for both the immediate term and the longer run but progressive companies stay closely connected to customer needs and make sure their supply chain focus uses the customer view as a key driver of investment decisions.

3. Getting the balance right - a question of faith

Cutting budgets in one area while expanding them in another means explaining to those who are being asked to bear the burden of the former why the company is spending on the latter where no immediate benefits are visible. This is not easy, particularly when employees have taken wage and salary cuts and are being asked to find smarter ways of doing things that will take out more cost. Transparency, honesty and frequent clear communication from the top are vital ingredients here.

To pull off a combination of cutbacks and strategic investments, CEOs have to exercise cost discipline and financial prudence and detect opportunities that offer reliable returns in reasonable payback periods.  They must also call on their personal credibility for making sound, reasonable and fair decisions that they have built up before the crisis began.  The results of this study seem to support the view that leaders who do best in a crisis are the ones who also did best before it occurred.

Next: The research on the GFC of 2008

The purpose of this series is to help try and identify the most successful path back to growth following the Covid-19 pandemic.

The insights obtained from the studies of corporate strategies and the results they delivered during the 2008 Global Financial Crisis is the basis for our next blog in this series.  



More Posts

Subscribe to the Mariner 7 blog

Request a personal demo today