Purpose: To investigate where investment during a recession pays off and where it does not. Methods: Comparing analogous businesses in the unique PIMS database, we highlight three measures to distinguish between successful and unsuccessful strategies. They are: average profitability during recession, defined as return on capital employed, change in profitability (ROCE) during first two years of recovery, and change in market share during first two years of recovery. Scope: 1,000 businesses were compared (drawn from 4,100 in the PIMS database). Results: PIMS’ evidence distinguishes between “good costs”, “bad costs” and “it depends costs”. “Good costs” are those that should be increased and intensified during recession. “Bad costs” are those that need to be pruned hard in recession. “It depends costs” are those where the right actions are dependent on the strategic position of an individual business at the time the recession begins. Conclusions and recommendations: “In a recession, dare to invest aggressively in marketing, innovation and customer quality”, is the clear message to be drawn from PIMS (Profit Impact of Market Strategy) research into which business strategies aid success during and after a market downturn lasting several years.
Roberts, K. (2003), "What strategic investments should you make during a recession to gain competitive advantage in the recovery?", Strategy & Leadership, Vol. 31 No. 4, pp. 31-39. https://doi.org/10.1108/10878570310483960Download as .RIS
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