Downturns are a recurring fact of life in every industry. Sooner or later, demand for an industry’s products or services declines—often dragging prices down along the way—regardless of the state of the economy as a whole. While it’s true that many more industries suffer downturns during recessions, it’s a mistake to think that any industry is safe during periods of normal economic growth. In the past two decades, at least 20% of all U.S. industries have battled a downturn in any given year but 1984, when GDP growth soared to more than double the norm.
Given these apparently gloomy facts, what should executives do to help their companies weather a slump? As in so many instances, there are conventional approaches that appear to make sense in the short term. For example, company leaders often approach impending trouble with overconfidence, denying that their industry faces any real danger. Then, when the downturn is an established fact, they make across-the-board cuts of everything from R&D spending to employee head count. Finally, when signs of recovery are everywhere, they turn on the spending spigot to rebuild morale. Although these approaches seem reasonable in the heat of the moment, they can eventually damage competitive positions and financial performance.