"How do firms respond effectively to a crisis?"

 

"How do firms respond effectively to a crisis? As the current spread of the coronavirus COVID-19 is expected to have devastating economic and societal repercussions, this question raises growing interest among strategy scholars and practitioners alike. Our overview of select articles published in the SMS journals points to four strategic responses to crisis: Retrenchment, persevering, innovating, and exit.

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Retrenchment refers to cost-cutting measures that potentially reduce the scope of a firm‘s business activities. As prior research shows, this strategic response may help firms survive a crisis in the short run, as it partially offsets lost revenues. However, evidence on the long-term viability of retrenchment measures is mixed at best: While some studies position retrenchment as a necessary precursor to strategic renewal and firm recovery, other studies warn of the irrecoverable damages such as the loss of synergies that retrenchment measures entail.

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Persevering relates to the preservation of the status quo of a firm‘s business activities in times of crisis, e.g., through debt financing and the consumption of available slack resources. Prior studies suggest that persevering can be a viable strategic response to the crisis in the medium run. Specifically, the value of conducting strategic renewal ― "too early" in times of crisis may be eroded by constant and unforeseeable changes in the business landscape, thus leaving firms that persevere better off. However, when crises last for longer periods of time, the sources of internal and external slack may dry up at some point. Then, it might be ― "too late" to conduct strategic renewal in order to tap into alternative sources of revenue, as this process often requires slack resources as well. Thus, in the long run, persevering may threaten firm survival.

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Innovating refers to conducting strategic renewal in response to a crisis. As prior studies show, crises open up opportunities for strategic renewal—even for firms that rigidly stick to their strategy under business-as-usual conditions. This is so because crises trigger a mode of reflection that allows managers and employees to transcend the boundaries of what they believe is thinkable and feasible. Given that especially long-lasting crises leave irrevocable traces in the business landscape that render a return to the previous order impossible, innovating is an important, if not unavoidable strategic response to the crisis for sustaining firm survival in the long run.

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Exit refers to the discontinuation of a firm‘s business activities. While a firm‘s exit is conventionally viewed as a forced outcome of conducting an unprofitable business, it can also be a strategic response to the crisis. Specifically, exits free up committed resources that can, then, be reused for pursuing crisis-induced business opportunities. In this sense, an exit is not necessarily a manifestation of business failure per se, and it is not necessarily the last resort when the other strategic responses to crisis fail. Instead, a business exit may be a valuable strategic response to a crisis at any time."

Trechos retirados de "Strategic responses to crisis"