Ilitch School management professor and Ph.D. alum published in Harvard Business Review
Mike Ilitch School of Business Associate Professor of Management Scott Julian and Oakland University Assistant Professor of Management Mike Greiner (Ph.D. ’18) recently co-authored a paper published in Harvard Business Review.
Harvard Business Review publishes articles on strategy, innovation, leadership and other business and management topics.
The co-authored paper, “Avoid Making This Strategic Mistake in a Recession,” discusses the current economic crisis with a focus on unemployment.
We are currently in the midst of the most severe economic crisis since the Great Depression. The unemployment rate has hit a record high, and the International Monetary Fund is predicting a drop in our GDP of nearly 6 percent this year. If this is purely a supply shock, then our economy should recover quickly once restrictions on economic activity are lifted. On the other hand, according to a report from the Becker Friedman Institute of the University of Chicago, 42 percent of the jobs lost so far in this crisis could be permanent losses. If that is the case, then this supply shock will turn into a demand crisis much like the Great Recession of 2008, and recovery will be much slower. With so much uncertainty, what should a strategist do? We looked at data from the period right before the 2008 recession addressing how 5,278 publicly-traded firms fared based on their generic strategy of being either pure differentiators or pure cost leaders, according to Michael Porter’s theories. Differentiators compete based on a variety of factors, such as quality or service, rather than prioritizing low prices. Cost leaders, on the other hand, focus their strategy on reducing costs thus enabling them to offer the product for the lowest possible price. Porter says either strategy will be successful, as long as the strategic orientation is pure. But in our analysis, differentiators were significantly more likely to suffer reduced revenues than cost leaders in the Great Recession and were significantly more likely to go out of business.