So much has been changing. The Great Recession has had an impact. Technology has advanced, causing some industries to be disrupted. And, market conditions for many companies have shifted, often in ways that can challenge long established players and favor newcomers appearing to better meet today’s market needs. All of this leaves companies dealing with the issue of the right way to change. After all, change can unleash opportunity. But, it can also bring major disappointment.
Based on my 25+ years researching business success and failure patterns, companies are far more prone to mishandling their response to change when they face pressure to improve their situation. In contrast, companies less desperate to change, and better prepared for it, are more likely to see favorable results than their counterparts who face greater urgency. Times of urgency can easily encourage companies to overreact in the wrong ways.
Many companies were forced into an urgent situation by the Great Recession. The most recent issue of Harvard Business Review (May-June 2019) discussed this in the article “How to Survive a Recession & Thrive Afterward: A Research Roundup” by Walter Frick. The article tells of research done by Bain, as well as a study by McKinsey, and points out what distinguished the companies that thrived after the recession from those that stagnated. The article says, “The difference maker was preparation.” Regarding the stagnating companies, the article states that “according to the Bain report: ‘When the downturn hit, they switched to survival mode, making deep cuts and reacting defensively’.”
As I see it based on my research, recessions aren’t the only time companies suffer as they go into survival mode. Encountering any challenging situation may cause companies to react as if their survival is threatened. Thus, survival mode can be triggered by urgent times regardless of why the urgency arose.
This can happen, for example, when a company’s business stagnates for any reason—whether its products are maturing, its markets are shifting, or whatever. Treating these situations as survival mode can be quite tempting for companies. In these kinds of disappointing circumstances, companies are inclined to misuse their tendencies toward a bias for action, often acting in ways that are not in their best interest. This can entail companies pursuing financially disastrous directions, with the misguided hope that their new initiatives will rekindle stronger performance. In situations like this, companies often spread themselves thin by pursuing too many ill-fitting new areas at once, embarking upon a disastrous situation that I call a new products/new ventures phase, a temporary period that ends when the company realizes how much money the new pursuits are losing.
Companies can also be driven into survival mode when their long-established business is not doing as well as a hot new start-up in their industry. In this situation, a company is vulnerable to taking drastic action, and if the company yields to the temptation to overreact, performance can suffer. Furthermore, the hot new startup that established players are pressured to imitate may not even be able to sustain its impressive success in the longer run.
So, when companies experience urgent times of vulnerability, they should avoid succumbing to pressure to overreact. Companies do much better if they are prepared and use their know-how to react in ways that are strategically right, not in what seems to be desperation for survival. It doesn’t matter whether the vulnerable time is due to recession or to changing situations in the industry. Regardless, responding in a more prepared fashion and avoiding survival mode brings far better outcomes. Even when changing circumstances cannot be anticipated and last-minute decision making is required, companies should make choices that fit strategically and avoid desperate overreacting. That’s the way to thrive after urgent, vulnerable times.
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