7 Key Business Strategies to Survive and Thrive Despite a Recession

Bain saw signs that a recession was imminent in excess leverage in the corporate sector, geopolitical uncertainties involving U.S. China trade and Brexit, as well as economic instability in certain European countries.

Bain was wrong. A deep recession is finally here. The COVID-19coronavirus is the culprit.

COVID-19 has had a huge impact on the global economy. Whole nations have been forced to shut down their businesses and services. The virus continues to take a toll on healthcare systems and populations.

This makes the current recession unlike any other in recent history. It is difficult to predict the possibility of more outbreaks after a peak in infection and death.

One thing remains constant in every recession is this: Smart businesses will always ask the same question: How can we survive a recession and take control of our future?

There are key answers to this question that can be found in research covering the recessions over the past few decades. We have gathered the top recommendations of McKinsey and HarvardBusiness School researchers to help us understand what we can learn about companies that survived and thrived in recessions past.

Here's a quick overview of what we found.

How Companies Fare in Recession

While we all know that businesses suffer during recessions, one of the most surprising indicators is a 2010 Harvard Study which looked at the recessions in 1980, 1990, and 2000. The study found that 17% out of 4700 public companies did not fare well during these recessions. They either went bankrupt or went private, or were bought.

Researchers also found another shocking statistic: 9 percent of these companies that were in recessions did not simply recover within the three years following the recession. They thrived and outperformed their competitors by at least 10% in terms of sales growth and profit.

Bain's subsequent research, which was focused on 2009 GreatRecession, revealed that the top 10% saw their earnings rise steadily through the recession and continue to grow afterward.

Over a period of 10 years, these companies saw a 14% increase in while the rest of the 90% experienced flat growth over the same time period. According to Jeff Katzin, a Bain partner, the difference in being outperformers or not was three-fold the enterprise value of the organization. A McKinsey third study found similar results.

Bain's analysis on the Great Recession revealed that preparation was the key to success. Bain's analysis of the Great Recession found that few companies had prepared for the worst and thought about alternative scenarios. They switched to survival mode when the downturn struck, making drastic cuts and reacting defensively. Many end up in a slump and are slow to recover.

We now have the best way to avoid this fate. They start with preparation. It's crucial to be prepared for any recession even though we are already in it.

Strategies to Survive and Thrive in a Recession

1. Prepare and Deploy

High levels of debt make companies most vulnerable to a recession. According to Xavier Giroud of MIT Sloan School of Management, and Holger Mueller of NYU Stern School of Business, the majority of businesses that fail because of falling demand are high-leveraged. They have too much debt and run low on money.

Mueller says that the more debt you have, Mueller explains that you will need more cash to pay your principal and interest payments. This puts you at risk for default.

Companies with high debts are often forced to reduce their costs in order to keep up with the payments. This is usually done through layoffs. This can lead to a reduction in productivity and the ability to finance new investments. It also limits their options and leaves them with little opportunity to act opportunistically.

Many companies have debt that goes into recession. However, debt is not always a bad risk. Research has shown that private equity companies, which require portfolio companies to take out debt, did better in the Great Recession than similar leveraged non-PE-owned companies. Because their owners were able help them raise capital, PE-backed companies emerged in better condition.

As an alternative to debt obligations, companies can issue equity. The risk of default is therefore less severe.

Mueller says that companies should deleverage if they believe a recession is imminent. It is possible to shed assets without having to cut core operations.

McKinsey research has supported this idea. It shows that firms that recovered from the Great Recession in better financial shape have less leverage than those that did not.

2. Concentrate on Decision Making

Recent 2017 research shows that companies' performance in times of recession and recovery depends on the people making key decisions, not just what decisions they make. Research showed that decentralized companies performed better than those that were more centralized during the Great Recession.

RafaellaSadun, Harvard Business School's research assistant, said that the recession brought about a lot uncertainty and turbulence. The decentralized firms were able to adapt better to changing circumstances because they had decision-making further down in the hierarchy.

As a result, they adjusted their product offerings more aggressively to meet changing demand. This highlights the importance of looking at the company structure in order to evaluate the advantages and disadvantages of decentralized vs centralized decision-making.

3. Financial discipline is essential

Bain & Company has shown that almost all companies need to manage their costs during a recession. Some companies managed to do this during the GreatRecession, by cutting back on low-value processes and reducing the complexity and volume of work.

Bain partners Jeff Katzin and Tom Holland claim that cost management was viewed by them as a way of refueling the growth engine for the next stage of the business cycle.

Bain's findings confirmed that winners manage their balance sheets as strategically as the P&L. Companies often divested non-core assets in order to invest more in their core businesses. Or they looked into new ownership models in capital-intensive industries.

It's difficult for many companies to maintain a high level of financial discipline. Bain found that only 15% of North American and European CFOs have regular access to the balance sheets of each unit or area below a Division. This makes it more likely for management to focus too much on the P&L.

4. Avoid Layoffs

In a downturn certain layoffs are necessary. The COVID-19 pandemic forced some companies to make drastic decisions, as all but essential services are now allowed to operate in multiple countries, states, and jurisdictions. In RanjayGuilati's study the Great Recession, layoffs were associated with lower post-recession business plan quote.

Layoffs can be costly for companies over the long-term. It is costly to hire and train new employees to replace workers who are laid off. This can lead to lower productivity and morale at a time where companies cannot afford it.

The Great Recession saw companies emerge in strong positions because they relied less heavily on layoffs and focused more on operational improvements. Honeywell, for example, laid off almost 20% of its workforce in the 2000 recession, and then struggled to recover. In 2008, Honeywell took a different approach. Honeywell furloughed employees to provide unpaid or partially-paid leaves depending on the local labor regulations.

This strategy saved approximately 20,000 jobs and put the company in a better place after the Great Recession than it was in 2000. However, 2008's downtown was worse. Honeywell came out ahead in terms of sales, net income, and cash flow.

Other strategies, such as temporary furloughs and cutting back on hours, can be used by companies to control labor costs while not compromising productivity. They should not make cuts across the board or freeze hiring to compensate for employee productivity. These can backfire and damage morale and cause your most productive employees to leave.

5. Invest in Technology

Technology is an effective tool to protect against recessions. It provides opportunities to increase efficiency, reduce costs and increase agility when they are most needed. Bain's Holland, Katzin and others believe that digital technologies can help businesses move faster and streamline their business processes through both continuous improvement and step-change.

"Recession-victims can also use new technologies and cost management tools such as supply chain reinventions, complexity reduction, zero-based budgeting to transform the cost game."

Katy George, McKinsey's senior partner, said to Holland and Katzin that digital transformation should be prioritized before or during a recession. She explained that improving analytics can help managers better understand the business plan prices and how it is affected by the recession.

She says that digital technologies allow for greater flexibility in product changes, volume changes, and movement of your supply chains around the globe.

George suggests that companies prioritize self-funding technology transformation projects that will pay off quickly to reduce the cost of technology adoption in a downturn.

A recession can also be a good time for technology investments, as they are often less expensive in indirect terms than the demand for them.

Holland and Katzin state that "when the economy is strong, companies have every incentive to produce as many as they can. However, if they divert resources to invest in new technology, it could be wasting money. However, if fewer people want to buy your product, then operations can be stopped at their maximum. This frees up funds to finance IT initiatives and reduces sales. In this sense, technology adoption is cheaper during recessions.

6. Adopt aggressive commercial plays

Bain's Great Recession research also revealed the benefits of being aggressive and reinvesting only for commercial growth. The Great Recession saw the most successful companies employing common strategies to increase commercial growth, while their peers were stuck in survival mode waiting for the economy's recovery.

• Instead of investing in dialing back, invest heavily in R&D.

• Prioritized prospects and sales accounts are ranked based on their potential lifetime value and all-in profitability.

• Realign distribution by rebalancing current and future locations or next-generation formats.

• Competitors cut back on marketing, but maintained marketing.

• We are focused on improving customer experience by making it easier and more personal through digital capabilities investments.

We've seen that some companies are better equipped to take advantage of opportunities in difficult times like the COVID-19 pandemic. This is largely due to their ability to service customers remotely and digitally.

Digital tools and channels are more cost-effective and better suited to customers in order to take advantage of recession opportunities and grow. Next-generation data analytics is able to identify profitable opportunities, customer segments, set pricing and adapt quickly to changing recession conditions.

7. Make smart decisions with M&As

After the last recession, well-positioned companies emerged victorious by using mergers or acquisitions to diversify or invest in their portfolio and reshape it. They purchased new product lines, customer segments, and capabilities at lower prices or sold businesses that weren't strategic for the company's future.

Stanley's 2009 acquisition of Black& Decker was a good example. After Black & Decker's 41% drop in EBIT and 22% revenue drop, Stanley's acquisition of Black& Decker in 2009 was a good timing deal. Stanley's diligence and speed have helped to produce healthy revenue growth since 2010.

The COVID-19 recession has already identified vulnerable industries, businesses and products that may be primed for divestment. It's also pointing out many opportunities to invest into capabilities, segments, and products whose strength or value has become more evident during the pandemic.