BOSTON, MA--(Marketwire - February 18, 2010) - The Boston Consulting Group is publishing a far-reaching diagnosis of the global economic crisis and an in-depth analysis of what leading corporations need to do in order to excel in a postrecession slow-growth world, in a new book titled "Accelerating Out of the Great Recession: How to Win in a Slow-Growth Economy" (McGraw-Hill, February 2010).

The authors, David Rhodes and Daniel Stelter, senior partners at BCG, argue that companies face ongoing and long-term challenges brought on by global trade imbalances, unstable financial institutions, and overleveraged consumers who can no longer be counted on to drive economic growth.

"There will be no return to the 'old normal,' and, just as we won't be able to count on the consumer -- especially the U.S. consumer -- to rescue the global economy, it's unlikely that the growth of emerging economies such as China and India will be enough to generate a return to pre-2008 global growth," says Stelter.

Rhodes adds, "Business will have to adapt to some 'new realities' -- including greater government intervention, the shakeup of existing industry structures, cost-conscious consumers inclined to save more, and an atmosphere in which stakeholders, ethics, and solid governance take priority over shareholders and quarterly results."

New Realities Require Painful Adjustments but Offer New Opportunities

Companies need to prepare for a multispeed global economy. While some countries (such as China, India, and Brazil) are seeing a return of prerecession growth rates, the developed world will experience many years -- if not a decade -- of slow growth.

"It's important to remember that U.S. consumers generate a large share of global GDP -- nearly 19 percent. There's no obvious short-term replacement for this mainstay of global commerce. Even China's economy will not have sufficient strength to save the economy: it would take a 32 percent increase in private consumption in China to offset a 5 percent reduction in U.S. consumer spending," says Rhodes.

Companies will have to make some painful adjustments as they come to terms with the new realities.

To stabilize the financial sector, governments mobilized more than $18 trillion, and they injected more than $2 trillion to stimulate the real economy. These initiatives to "reflate" the global economy amount to an unprecedented and historic experiment, and it is not clear what the long-term impact will be. There remain "zombie banks" that do not or cannot provide loans, making shrinking credit a problem that could last for years. And even with a 1990s-type job creation rate, it would take until 2014 for unemployment to return to its prerecession level. Also, one of the side effects of all the government intervention is the increased influence of politicians in business affairs.

But the authors conclude that the rewards for companies that effectively navigate this slow-growth world will be significant and sustainable. Corporate leaders who act boldly have the potential to seize once-in-a-lifetime opportunities that will allow them to change the pecking order of their industries.

Businesses Are Not Acting Decisively Enough

As part of the research for "Accelerating Out of the Great Recession," BCG surveyed more than 400 executives in seven countries at companies with more than $1 billion in annual sales. The majority of the respondents expressed an appropriately sober view of the business climate. And most -- between 50 and 70 percent -- have made the basic defensive moves, such as increasing their focus on key customers, reducing administrative expenses and inventory levels, and renegotiating supplier contracts. However, far fewer have made the more difficult and important longer-term moves. For instance, only 44 percent plan selective exits from product lines, only 39 percent plan selective exits from customer segments, and only 43 percent have taken or plan to take action involving divesting businesses and exiting sales channels.

Stelter notes, "Leaders recognize the need to be both defensive and aggressive. But when it comes to taking action, they seem to be just playing around the edges of cost cutting. We're concerned that they are neglecting the necessary adjustments in order to meet their own expectations of a slow-growth global economy."

Defense First: Leaders Need to Safeguard the Long-Term Health of Their Companies

Rhodes and Stelter have dug deep into the history of companies that outperformed during three major recessionary periods -- the Great Depression, the U.S. stagflation of the 1970s, and Japan's Lost Decade -- in order to identify strategies with a proven record of working in the toughest times. They investigated some 100 companies during the Great Depression (constituting two-thirds of the 1929 capitalization of the New York Stock Exchange), all companies in the Standard & Poor's 1500 Index in the 1970s and 1980s, and nearly 5,000 Japanese companies from the 1990s and early 2000s. Outperformers from these periods were subjected to an in-depth analysis in order to discern the roots of their success.

According to Rhodes, "To learn how companies can thrive in a damaged postcrisis economy, it is useful to look at companies that thrived during the Great Depression. Although it may seem ironic given their recent performance, GM and Chrysler actually excelled in the 1930s and were able to grow their market share by a staggering 15 and 19 percentage points, respectively, during the Great Depression.They acted quickly and decisively on the defensive side and were able to take the fight to their competitors."

To survive in today's challenging and highly competitive environment, companies need to protect their fundamentals as follows:

-- Rethink cost models. One way to make cuts -- without damaging the core -- is to restructure around profit centers and projects. In the 1930s, General Electric was able to outperform its competitor Westinghouse by cutting costs quickly and deeply while also retaining its top talent.

-- Synchronize inventories to shifts in the external environment. Simply cutting inventory, without reference to other factors, is a mistake.

-- Lower the perceived price of goods and services. By removing add-on features or unbundling them, companies can create the perception of price cuts while actually preserving margins and revenue.

Defense Is Not Enough: Companies Must Go on the Offensive and Deploy Game-Changing Strategies

After protecting their fundamentals, executives need to be ready to go on the attack. The competitive environment will be harsh -- and now is the best time to make some of the game-changing moves that could change the future of their companies and their industries.

Executives need to consider the following moves:

-- Embrace government affairs and programs. Two of the strongest companies of the last several decades, GE and IBM, were beneficiaries of opportunities created by the New Deal programs of the Great Depression. Executives need to learn to work with increasingly influential and powerful politicians and government officials.

-- Invest shrewdly in R&D and innovation. Downturn investments are often a better value because there is more availability of, and less competition for, resources. IBM continued to invest in innovation during the Great Depression, and McDonald's accelerated past Burger King during the 1970s by increasing the relative number of store openings.

-- Increase M&A activity. BCG research shows that deals completed during downturns significantly outperform those done during upturns. In downturns, premiums are lower and opportunities are richer and more abundant. Now is a good time to be a predator, rather than waiting passively and becoming prey during the slow-growth period.

-- Learn from, and keep an eye on, "challenger" companies in rapidly emerging markets. These companies will be able to accelerate faster because of cost advantages and comparable technical competence.

-- Address work-life balance issues. Flexibility in this area will help compensate for lower wages and, at the same time, enable companies to retain the talent they need in the future.

Observes Stelter, "Simply cutting costs and slashing marketing expenditures is not enough. Now is the time to transform industries. In the book, we show how many other companies did it during past recessions and postrecession periods. Executives need to take the lead in employing game-changing strategies."

"History shows that structural shifts in the pecking order of industries occur more often in difficult times than in prosperous ones. And these shifts often endure for a long time," adds Rhodes. "During downturns, what distinguishes long-term winners from the also-rans is the courage to make bold, difficult decisions. In the long term, actions taken now will be the ones that define the future of companies and even industries, and it is up to executives to act."

The New Business Environment Will Trigger a New Corporate Culture -- Requiring Leaders to Adopt a New Managerial Mindset

"In the postrecession era, well-run companies will be characterized not by constantly improving quarterly earnings but by solid balance sheets, good cash positions, and strict management, all of which will result in lower profit levels as postrecession prudence replaces prerecession leverage," Stelter notes.

The authors also maintain that the pendulum will swing from favoring shareholders to favoring a wider range of stakeholder groups. "The culture of a company will assume new importance as organizations act to preserve their skill base and to be seen as proceeding responsibly in the aftermath of the Great Recession," Rhodes states.

The book also makes the following points:

-- Given that a slow-growth environment will lead to lower equity returns, stock options may lose their appeal -- so it will be necessary to redesign compensation systems in order to attract and retain talent and reward strong and sustained performance.

-- There will be a call for executives to not just reap the benefits of upside gains but also bear downside risk. Executives will increasingly have to put some of their own wealth at stake.

-- The debate about what constitutes "fair" capitalist behavior will move to the forefront. More than two-thirds of executives expect an increase in public scrutiny of business ethics and personal actions.

The authors maintain that running a company in an era of slow growth will feel altogether different from the way it has felt in prior years -- and much will rest on how CEOs and management teams are willing to challenge their existing managerial mindset.

Rhodes observes, "It will no longer be enough to play just to play -- it will be necessary to play to win. Those who take the initiative, respond decisively to the challenge, find their own way of differentiating themselves from less fleet-footed competitors, and execute their strategies with single-minded determination can expect to grow."

To receive a copy of "Accelerating Out of the Great Recession" and supporting materials, or to arrange a conversation with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or

About the Authors

David Rhodes is a senior partner and managing director at The Boston Consulting Group and the global leader of the firm's Financial Institutions practice. Since joining BCG in 1985, he has worked primarily on projects involving major strategy and organizational change in large financial institutions, working with clients in Europe, Asia-Pacific, the Middle East, and the United States.

Daniel Stelter is a senior partner and managing director at The Boston Consulting Group and the global leader of the firm's Corporate Development practice. During his 20 years with BCG, he has participated in and directed many projects throughout Europe with a focus on corporate finance (including M&A, IPOs, due diligence, strategic alliances, and joint ventures) and strategy (including portfolio strategy and value management).

About the Survey

Survey results are based on an online questionnaire completed by 434 business managers in seven countries. All respondents represented companies with at least $1 billion in global revenues in 2008, from all industries except financial services. The survey was commissioned by The Boston Consulting Group and administered by Grail Research from August 24 to September 1, 2009.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 68 offices in 39 countries. For more information, please visit