Why do companies get stuck

During this pandemic, key lessons to be learnt from prior economic crises have been proselytized by every consultant and his dog – including me.  The fundamental message, which is essentially the same, revolves around impetus and change. Such advice has been extensively discussed for over a decade.

Specifically, these are to quickly develop a strategy with alternative scenarios, act decisively in terms of costs, pivot towards those investments (projects) that will propel your core business and acquire resources such as talent before the market turns around.

Yet studies show the majority of companies struggle for years post-crisis.  For example, a Harvard Business Review study of the past three recessions showed that approximately 75-80% of companies do not regain their pre-recession growth rates for sales and profits three years after a recession (this excludes companies that do not survive).

Less than 10% of companies thrived post-recession. These companies successfully incorporated the lessons mentioned above.  Note the word “successfully” as even some companies that did attempt initiatives to counter the impact of a downturn did not succeed.

What causes this lack of success?

The primary reason from the Harvard study was that companies were ineffective in allocating capital for new growth opportunities. This is because budgeting is a zero-sum game. To allocate capital for a new opportunity means taking away capital from existing operations which causes inertia. The reasons given for this lie deeper within human behaviour and biases.

 

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Please do reach out if you wish to know more about gaining agility for your business. I can be contacted at Cornell@qualia8.com