Sinking the boat or missing the boat

James Surowiecki writes in the April 20, 2009 edition of The New Yorker that during hard economic times, companies cut costs including labor, advertising spend, and research & development, as well as forego acquisitions even though prices are lower.  However, companies that remained market leaders during the 1990-1991 recession increased spending according to a McKinsey study.  Research by Bain found that recessions can be opportunities for companies to leapfrog over their competitors.

Thus, CEOs and senior management have a difficult choice.  They can choose to slash costs in order to win a war of attrition — becoming lean to survive the recession assuming that their competitors drop out of the market or business altogether.    Alternatively, they can invest in advertising, research & development and acquisitions in order to grow market share and transform themselves into market leaders.  However, there is no guarantee.  Do you risk sinking the boat in order not to miss the boat?

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