Today I read a fun 2010 article from the Harvard Business Review. Instead of just the usual legends (“Remember how Fedex was started in a recession? That’s how you do it!”), they did a proper study looking at companies and how they were approaching the 1980, 1990, and 2001 recessions—and which approach worked best.

The article is worth the time to read yourself—I’ll give you a mini summary so you can decide. I’ll cut the fluff and just focus on the four strategies and the quick “why it sucks or doesn’t”:

1. Cut costs across the board (“Prevention”)

Recession looming? Cutting costs is the go to strategy for most execs. What this strategy means:

  1. fire people
  2. “operational efficiencies”, i.e. save costs by doing things you have to do but better. Find cheaper suppliers.
  3. Cut back on investment

Why? The reason is simple: focus on survival by reducing expenses. It’s also easy to justify because it’s across the board: everyone, we have to sacrifice to make it through this, so every department has to let go of 5% of staff.

The problem? The same thing: you do all these cuts across the board. Employees don’t focus on saving costs but become (rightly) afraid. Killing off investment means you also kill off innovation you need to come “roaring back” as the article is titled.

It’s less a strategy and more a panicky reaction to things going to hell. (Probably especially true in surprising recessions.)

Example from the article: Sony

2. Double down on investing (“Promotion”)

What, everyone is running scared? Awesome! Let’s double down on innovation, buy up the cheap things everyone is selling, and we’ll fly once the recession is over!

This strategy means:

  1. Don’t focus on cutting expenses.
  2. Instead, ramp up investments, R&D.
  3. Gobble up bargains (Buy equipment from competitors who downsize, cheap companies)

Why? The idea is that the downturn will end, and you want to be in pole position for growth?

The problem? It is a recession. Your customers spend less. Your suppliers get into trouble. With this approach, you don’t adapt.

Example from the article: HP

3. Do both, across the board (“Pragmatic”)

“This is real life, we gotta save money and keep investing.” So you do both: cutting costs across the board while also pushing along investments.

The problem? It’s unfocused.

Example from the article: Office Depot vs Staples

4. Save costs but smartly, invest (“Progressive”)

Okay, so we want to save money. But we don’t want to lose our best employees, we want people to focus on making operations more efficient. We also don’t want to cut back on investment.

So, here is the strategy:

  1. Don’t start firing people, especially not across the board.
  2. Focus on operational efficiency. Tell everyone that times are lean, and they gotta find ways to reduce expenses.
  3. Cut back unprofitable areas—not across the board.
  4. Listen to your customers and double down on investments that pay off soon.

Key here is:

  1. you keep people motivated by not randomly firing them. It also means you have the experienced staff you’ll need once things get going again.
  2. not ultra-long bets: you focus on customer-driven product lines, services, investments that pay off somewhat soon
  3. you trim, but selectively

The problem? Communication. You gotta tell some folks that they get less money, while others get more. That some areas need to go while others won’t. It’s harder to execute.

Example from the article: Target

Convinced? Okay, read the article: