Recessions Cause Industry Shakeups

ShakeupsTry as we might, we can never accurately predict the timing or depth of a recession. The best we can hope for is a set of scenarios with probabilities associated with them. As the Nobel laureate Paul Samuelson once said, “Economists have correctly predicted nine of the last five recessions.”

One thing that seems clear about recessions is that they cause significant industry shakeups. Some companies that were leaders in their industry fall from their heights, and others rise to take their places. McKinsey compiled a data set on the last recession (2000-01), and found that nearly 40% of leading U.S. industrial companies toppled from the first quartile in their sectors during that recession. About a third of leading U.S. banks fell as well. During the same period, 15% of companies that had not been industry leaders prior to the recession vaulted into the top quartile during it.

The are many reasons why some companies lose leadership positions during recessions and others gain them, but it generally comes down to smart planning and decision-making. See my article Strategy in a Downturn for best practices companies can use to maintain or grab leadership positions in their industries.

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