Memo to Businesses: Be Aggressive, B-E Aggressive!

Research indicates that companies that take aggressive competitive steps during periods of crisis have a greater chance of thriving in the future.

Published

Mar 15, 2010

Research indicates that companies that take aggressive competitive steps during periods of crisis have a greater chance of thriving in the future.

Site Staff

While the natural reaction to an undesirable situation might be to get defensive or bury one’s head in the sand, it’s actually acting proactively and decisively that can lead to the greatest long-term benefits. Just ask David Rhodes and Daniel Stelter, senior partners at Boston Consulting Group and authors of Accelerating Out of the Great Recession: How to Win in a Slow-Growth Economy. According to their research, companies that take aggressive competitive steps during periods of crisis have a greater chance of thriving in the future. “It’s always easy to take the protective route; it’s a lot tougher to take the aggressive, attacking option,” Rhodes said. “[But] those companies that take decisive action while their competitors dither have a much greater chance of gaining significant advantage.” Rhodes explained that the global economic environment is shifting and the new reality requires a different competitive approach. “If the market is only growing slowly, to [thrive] you have to gain market share,” he said. “That means competitive intensity is going to increase, and indeed it has been increasing. The evidence of history is that entire pecking orders of industries get shaken up when economic times are very tough.” While the majority of organizations — between 50 and 70 percent — have made standard defensive moves, such as cutting costs and inventory, renegotiating supplier contracts and focusing on key customers, only 39 percent are planning exits from select customer segments, and 43 percent have taken or plan to take steps to divest businesses and exit sales channels. In their book, Rhodes and Stelter studied three periods of economic crisis in recent history: the Great Depression of the 1930s; the stagflation period of the 1970s in the U.S.; and the depressed economic situation in Japan beginning in the early 1990s. “You can clearly see that those companies that were successful [during those periods] were picking an area where they could clearly out-compete their competitors,” Stelter said. “[For example], Procter & Gamble [was] extremely aggressive in the ’30s in spending and marketing, whereas others [were] not. So they had an over-proportionate share of voice, which [translated to a] huge gain in market share.” Rhodes gave additional examples. During the 1970s, McDonald’s opened 500 new restaurants a year compared with Burger King’s 200, leading the golden arches to win “the battle of the burgers,” he said. In more recent years, Uniqlo, a successful clothing chain in Japan, shifted from out-of-town locations to attractive main-street locations and aggressively distributed, ultimately upping its market share from 7 to 23 percent. “It’s not that these strategies are unusual during normal times: The strategic levers are the same,” Rhodes said. “It’s just having the guts to pull these levers in tough times.” Further, Rhodes and Stelter found that some of the world’s most innovative ideas have come out of challenging circumstances. For example, DuPont invented nylon and neoprene in the 1930s. “[It’s just one of many] examples of where companies have used their strong position to attack competition,” Stelter said. “You can clearly say today that if you have cool products that people will want to have, they will be willing to spend in difficult times. Pick your battles.” To be able to afford to take decisive action and produce these kinds of results, Rhodes and Stelter said managers will need to develop a new set of skills, including but not limited to: 1. Leadership capability: “Leadership is very important,” Rhodes said. “And leadership in tough times is about walking the floor, making sure management is connecting with the workforce, not hiding in the office [or] using the excuse of the difficulties not to engage with staff [and] being honest with staff.” 2. Big-picture mindset: “There’s been a long recent history of aggressive [attention] to shareholder value, which in particular I would say led to the tyranny of the quarterly earnings report,” Rhodes said. “I’m not saying everybody is undergoing a sea change, but I think there are some investors, some shareholders, who are recognizing that taking a longer-term perspective is actually a helpful thing to do.” 3. Collaborating effectively with the board: “A lot of corporations have boards of mixed ability in terms of [their] capabilities to understand the fundamental business of the company,” Rhodes said. “I think we would argue that going forward, we will increasingly see boards with people able to hold management accountable and also technically accountable for the business.” 4. Understanding compensation: “If we get behind the vitriol, I think there is nevertheless a clear move to compensation that is longer-term, value-creation based, and less short-term, bottom-line [based], linked to what the management actually can control, and one where the risk is not asymmetrically shared between the company and the executives,” Rhodes said.