Monday, December 22, 2008

Consideration of Future Consequences in Times of Recession

The Economist journal review points to an interesting article from Knowledge@Wharton: "When the going gets tough, the tough don't skimp on their ad budgets". According to the article:

"Research shows that companies that consistently advertise even during recessions perform better in the long run. A McGraw-Hill Research study looking at 600 companies from 1980 to 1985 found that those businesses which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered. Specifically, companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise."

Considering the future consequences of business decisions during a recession is of course nothing new. I can remember reading management case studies about firms that kept staff on during recession rather than re-hire them at a later date. This is because the costs of recruitment search, re-hiring and/or re-training may be higher than paying employees during a profits squeeze. Of course, a strategy such as this depends on how much cash is on the balance sheet, the nature of business conducted by the firm and the likely duration of recession. This brings us to an interesting question: How Long Will the Recession Last?

Predicting the timing of market developments is a perilous task; Brendan Walsh summed up it up quite well on last week's Eamon Dunphy radio-show on RTE1, when he said its like "trying to predict when a goal will be scored in a football match". (The link to the full interview is available here on the Irish Economy blog). According to Anthony Karydakis, former chief U.S. economist for J.P. Morgan Asset Management and currently an adjunct professor at New York University's Stern School of Business, the prevailing view is that the recession should technically end during 2009. However, this will be followed by a "gradual recovery" (see a recent edition of Fortune - here).

This gradual recovery may gather pace two years from now, if commercial decision-making that considers future consequences is anything to go by. A friend who works in an Irish bank recently took a redundancy-type package of €20,000 with an agreement to re-join the institution in two years time. I wonder if that institution will perform better in the long run?

1 comment:

Ray said...

There are still high paying jobs on certain job sites, here's 3 from about.com's top ten job sites-
www.linkedin.com (professional networking)
www.indeed.com (aggregated listings)
www.realmatch.com (matches jobs based on your skills)

good luck to those looking.