OWP liVe REPORT

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The difference between companies that flourish versus perish in a crisis

L E A D E R S H I P

In spite of the pandemic, some businesses have continued to thrive while others suffered irreparable damage. Professor of Leadership & Organizational Behavior Shlomo Ben-Hur explores why. The key difference between success and distress is not necessarily what you may think, so it is critically important to understand the actions you can take to ensure your operation not only survives but outperforms your competition. What is the key difference between companies that come out ahead during and after crises, versus those who fail? We studied thousands of companies that went through different crises including many recessions going back to the Great Depression. Roughly 9% of companies thrived, outperforming their direct competitors in sales and profits and they had one thing in common: The behaviors of their leaders’ actions and decisions that followed mattered more than any other factor.

Size did not have a great impact on which companies succeeded, and even more surprisingly, pre-crisis performance did not play a significant role in which companies were outperformers. 85% of growth leaders prior to crises were toppled when the crises occurred. This emphasizes exactly how important leaders’ actions are when the business landscape suddenly changes.

Efficiency is where most companies go immediately, looking for cost-cutting measures and cash flow. It is important to be smart about the process and focus not just on slashing costs but evaluating how to make your company fitter. For example, during the last recession, Office Depot and Staples both cut costs by 10%. Office Depot cut costs evenly across the board, but Staples cut strategically in low-performing parts of their business while still investing in other areas. Staples ended up significantly outperforming its competitors. Evolution refers to how one develops their business for future growth. The top 10% of companies that performed well during crises invested in things like research and development, and marketing. This is also a time to look at technologies that can move your company forward. Recessions drive new technology, because adapting new solutions can often cost less during a recession and businesses can take advantage of production downtime to upgrade systems.

What were the business behaviors that defined successful companies?

SHLOMO BEN-HUR IMD Professor of Leadership and Organizational Behavior

The winning formula of behaviors was a combination of the “three Es”: Efficiency, Evolution and Empowerment.

Efficiency

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Evolution

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Empowerment