Page 18 - Accelerating out of the Great Recession

INTRODUCTION

Recessions separate winners from losers. While overall profit
levels fall within an industry, there can be great variation in
profit performance from company to company. Markets consol-
idate as outperformers strengthen their positions, and default
rates spike upward as underperformers drop out. In general,
larger companies outperform the others, but some small players
can leapfrog their weakened competitors and claim a top-three
spot in their particular industry.
Most important, companies that outperform in a recession
tend to enjoy a sustained advantage. They tend to retain their
performance leadership in subsequent years—in terms of both
revenue and share price. Indeed, an index of stock prices, base-
lined to 1932 (the trough year of the Great Depression), shows
that the average stock price appreciation of the top performers
over the subsequent five years was 34 percent greater than the
average performance of other companies.
The real question, therefore, is what drives a winning per-
formance in a downturn and the following upswing?
To find some answers to this question, we have dug deeply
into the history of past recessions, particularly the Great
Depression and Japan’s Lost Decade, to learn from the compa-
nies that fundamentally improved their competitive positions
even during those turbulent times. As you will see, we cite these
stories throughout this book and devote Chapter 3 to an analy-
sis of the U.S. auto industry in the 1930s. (For a description of
our research and how we chose the companies that we cite, see
Appendix A at the end of the book.)
In addition to this research, we conducted two surveys of
senior managers in large corporations. The first survey, com-
pleted in March 2009, focused on the priorities companies had
set for themselves to deal with the rapidly deteriorating eco-

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