This latest recession supposedly ended in late 2009, but many companies are just beginning to see the turn. However, with the new year, a new Congress, the uncertainty of the tax increase over and the hope for some regulatory restraints, businesses can begin to plan for the future. I believe we will see a significant increase in business spending by the third quarter, if not sooner.
So how did you survive these very difficult years? Did your company have massive layoffs early in the downturn? A recent article suggested how Honeywell has weathered this recession compared to how they reacted to the recession in 2001. During that earlier recession, Honeywell “decimated our industrial base,” according to CEO David Cote as reported in the
WSJ. During that earlier recession, Honeywell sales fell 11%, and they laid off 31,000 employees – one-fourth of its workforce – and cancelled all new product plans and goals.
During this recession, sales fell 15% by 2009 and profits had plummeted 23%. This time, the company used a different strategy. Benefits were cut and furlough employed so that permanent layoffs were limited to 6,000 employees. At the same time, they introduced 600 new products, including advanced industrial controls. Honeywell is now in position to reap the rewards for this strategy and saw a resurgence in profits in 2010.
That is no accident. As we suggested early in this series, a recession is not the time to decimate your core competitiveness with massive layoffs. We also suggested that the recession was a time to invest in your R&D so that you would come out of the recession with new products that address the need for higher efficiencies and better environmental impacts in this new corporate environment.
You cannot shrink your way to prosperity. A recent study of S&P 500 companies performed over 18 years found that those companies that cut the deepest relative to their peers delivered smaller profits and weaker stock returns for up to nine years after the recession – almost in time for the next downturn!
However, during this recession, about 100 companies in the S&P 500 reduced employment by more than 10% and 39 cut more than 20%. Many executives are now worried that these cuts may have gone too far and that they could very well hurt their long-term growth. They are probably correct, but hindsight won’t correct the situation these companies will face going forward.
Let’s hope your company took the other path and you have those new products ready for the coming boom in world markets.