Harvard Business Review
The Idea in Brief
Recessions are famous for breaking companies. But what few people realize is that recessions are in fact more likely to make a company's reputation.
A recent study by Bain & Company found that twice as many companies made the leap from laggards to leaders during the last recession as during surrounding periods of economic calm.
The next crop of leaders are acting now to restructure costs and go on offense.
Case in point: Walgreens, the Chicago-based drugstore chain. In the midst of this last recession, the company focused on expanding its lower cost, generic drug business. Earnings and sales for the fourth quarter of 2001 grew by 10.7% compared with the same period in 2000. Not only has Walgreens gained market share on its key competitors, but at a time when many drug retailers face capital constraints and a shortage of pharmacists, it plans to build 475 new stores and two new distribution centers this year.
Walgreens' success is not unique. The Bain study, which analyzed more than 700 firms over a six-year period that included the recession of 1990-1991, offers insight into how companies can take advantage of downturns. But first, you have to understand the strategic impact of a recession.
Learn more about how companies can navigate through turbulent times and succeed as the economy improves.
1. Recessions "shuffle the deck" more than boom times do.
The Bain study found more than a fifth of companies in the bottom quartile in their industries jumped to the top quartile during the last recession. Meanwhile, more than a fifth of all "leadership companies"-those in the top quartile of financial performance in their industry-fell to the bottom quartile. Only half as many companies made such dramatic gains or losses before or after the recession. Arrow Electronics (Melville, N.Y.) offers a striking example of trading places when times are tough. During an industry downturn in the late 1980s, the financially troubled distributor of electronic components and computer products launched a series of audacious but smart acquisitions that allowed it to increase sales by more than 500%, turn operating losses into profits, and seize market leadership from competitor Avnet (Phoenix, Ariz.), which was once twice Arrow's size. During the recent recession, Arrow has been acquiring again and widening its industry lead.