The Profile of Companies Weathering the Crisis

The crisis has been with us for a year and a half at least. Some say it is over, some fear it is not. It is unquestionable however that some companies have fared better than others, obtaining satisfactory economic performance where others are sinking. What makes them different from the rest? Which factors can explain their relative success and adaptability? With Laura Sobrero, I have looked at a sample of 500 medium-to-large European companies. Their 2008 profitability was put into relation with the strategic choices made by those firms over the previous four-year period. Checking for industry-related differences, we have found that regression analysis shows that two major factors are at the basis of these companies' ability to weather the crisis. Firstly, the study highlighted the importance of sustaining sizable investments in R&D through time. It's not enough to invest in R&D, even a lot, if it's not part of a protracted effort. In fact, companies having lower variance in their investments have obtained better results. This means that innovation should not be limited to introducing a new product or a new service having an ever briefer lifespan on the market, but to develop internal skills over a longer period of time. This makes firms better able to withstand economic shocks. R&D must be a company policy which becomes a company's culture. Secondly, more profitable companies have followed a peculiar growth path. One could be led to thinking that fast-growing companies prior to the crisis performed better than companies posting lower growth. The former could count on higher liquidity and stronger financial resources. Our research shows that there is an optimal growth rate for sales, beyond which negative effects prevail. There is a non-linear relationship between earnings and previous sales. The highest profitability is recorded for intermediate growth rates. Growing beyond mere survival is important, but growth is not the objective that should be maximized. Paradoxically, excessively high growth can undermine the bases of sustainable growth in the near future. These findings are useful in constructing strategies to steer business organizations out of the present crisis and be ready to face the next round of economic difficulties.