STRATEGIES FOR SUPERIOR PERFORMANCE IN RECESSIONS: PRO OR
               COUNTER-CYCLICAL?

CONTI, CLAUDIO RAMOS; GOLDSZMIDT, RAFAEL; VASCONCELOS, FLÁVIO CARVALHO DE

doi:10.1590/S0034-759020150304

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FORUM • Rev. adm. empres. 55 (3) • May-Jun 2015 • https://doi.org/10.1590/S0034-759020150304 copy

STRATEGIES FOR SUPERIOR PERFORMANCE IN RECESSIONS: PRO OR COUNTER-CYCLICAL?

Estratégias para desempenho superior em recessões: pro ou contra-cíclicas?

Estrategias para el desempeño superior en las recesiones: ¿pro o contra cíclicas?

Authorship SCIMAGO INSTITUTIONS RANKINGS

Recessions are recurring events in which most firms suffer severe impacts while others are less affected or may even prosper. Strategic management has made little progress in understanding such performance differences. In a scenario of decreased demand, intensified competition, and higher uncertainty, most firms try to survive by pro-cyclically cutting costs and investments. But firms could take advantage of undervalued resources in the market to counter-cyclically invest in new business opportunities to overtake competitors. We survey Brazilian firms in various industries about the 2008-2009 recession and analyze data using PLS-SEM. We find that while most firms pro-cyclically reduce costs and investments in recessions, a counter-cyclical strategy of investing in opportunities created by changes in the market enables superior performance. Most successful are firms with a propensity to recognize opportunities, an entrepreneurial orientation to invest, and the flexibility to efficiently implement investments.

Recession; cycle; opportunity; entrepreneurship; flexibility

Reflective constructs and their items	Load	CR	AVE
Change in performance		0.94	0.76
How much was your firm affected by the recession, in terms of:
Operating revenue	0.90
Operating profit	0.94
Net profit	0.93
Cash flow	0.87
Market share	0.69

Opportunity recognition		0.81	0.58
Particulary about the 2008-2009 recession:
Our firm's management treated the downturn more like an opportunity than as a threat.	0.90
Our plans for the downturn basically involved hunkering down and riding out of the recession. ( R )	0.63
We viewed this downturn as an opportunity to leapfrog over our competitors.	0.75

Innovativeness		0.75	0.50
Innovative ideas are well accepted in our firm.	0.72
Our performance appraisal system rewards people for new ideas and process improvement.	0.75
Our firm accepts errors as a way of learning	0.64

Proactiveness		0.82	0.60
Our firm typically initiates actions which competitors then respond to.	0.57
Particularly about the 2008-2009 recession:
We were very proactive in developing plans to counter the downturn.	0.90
We responded more quickly to the market changes caused by the downturn than our competitors.	0.83

Risk taking		0.72	0.57
The top managers of this firm believe that bold strategies are required to achieve our business objectives.	0.71
In general, people at our firm accept changes promptly.	0.80

Creativity		0.81	0.59
Our employees know how to improvise when necessary.	0.72
Our firm has great ability to adress new situations through new ideas of using the resources at hand.	0.80
In our firm, people are encouraged to resolve problems in creative ways.	0.79
Spontaneity		0.76	0.62
In our firm, actions are always carefully planned before execution. ( R )	0.71
To respond to unexpected events, our firm encourages balance between established plans and flexibility.	0.85

Operational flexibility		0.79	0.56
Our firm's structure has high fixed costs, wich hinders changes. ( R )	0.57
In responding to changes in the business environment, our strategy emphasys flexibility...
in the allocation of production resources to manufacture a broad range of products or services.	0.82
in the design of products or services to support a broad range of applications.	0.82

Strategic flexibility		0.78	0.55
In responding to changes in the business environment, our firm...
is able to reconfigure its organizational resources to support different strategies.	0.74
has difficulties in repositioning products or services to target diverse market segments. ( R )	0.70
In responding to changes in the business environment, our strategy emphasizes flexibility...
in the allocation of marketing resources to market a broad range of products or services.	0.78

Structural flexibility		0.75	0.61
Our employees are capable of performing different activities.	0.90
In our firm, employees do not have autonomy to change the way they organize their activities. ( R )	0.64

Supply strategy		0.90	0.74
What was the strategy adopted by your firm with regard to the following topics?
In the total number of employees	0.80
In the production of goods or service offerings	0.89
In the purchases of materials for those products and services	0.89

Demand strategy		0.81	0.60
What was the strategy adopted by your firm with regard to the following topics?
In research and development invstiments	0.89
In marketing investments	0.89
In product prices, on average	0.48

Capital strategy		0.77	0.53
What was the strategy adopted by your firm with regard to the following topics?
In the ease of credit offered to clients	0.71
In fixed assets investments	0.80
In investments in other firms	0.68

		Reduction^* * Can be either a reduction in investments, or the case of lay-offs, sale of assets, or divestitures.			No change	Increase
		Big	Small	Total	No change	Total	Small	Big
S	Staffing	12.6	39.6	52.3	37.8	9.9	9.0	0.9
	Production	12.0	37.0	49.1	39.8	11.1	10.2	0.9
	Purchasing	17.4	39.4	56.9	36.7	6.4	6.4	-
D	Marketing	16.2	27.0	43.2	41.4	15.3	12.6	2.7
	Pricing	10.9	20.9	31.8	49.1	19.1	17.3	1.8
	R&D	17.0	27.4	44.3	40.6	15.1	14.2	0.9
C	Credit policy	12.1	22.2	34.3	54.5	11.1	11.1	-
	Fixed assets	25.2	17.5	42.7	43.7	13.6	8.7	4.9
	Acquisitions	19.1	7.9	27.0	58.4	14.6	10.1	4.5

	Variables		Mean	SD	1	2	3	4	5	6	7	8	9	10	11	12	13	14
1	Change in performance	R	2.19	0.79	0.87
2	Opportunity recognition	R	3.20	0.77	0.36	0.76
3	Entrepreneurial orientation	F	3.38	0.61	0.11	0.30	n/a
⁴	Innovativeness	R	3.51	0.81	0.14	0.20	n/a	0.71
5	Proactiveness	R	3.30	0.74	0.01	0.32	n/a	0.36	0.78
6	Risk-taking propensity	R	3.34	0.85	0.09	0.18	n/a	0.35	0.38	0.75
7	Flexibility	F	3.34	0.60	0.03	0.35	0.62	0.45	0.48	0.46	n/a
8	Structural flexibility	R	3.57	0.86	0.10	0.10	0.33	0.32	0.07	0.34	n/a	0.78
9	Strategic flexibility	R	3.32	0.79	0.15	0.28	0.56	0.43	0.52	0.34	n/a	0.15	0.74
10	Operational flexibility	R	3.12	0.86	0.03	0.36	0.45	0.26	0.46	0.32	n/a	0.18	0.48	0.75
11	Strategy	F	2.56	0.60	0.55	0.33	0.03	0.02	0.00	0.04	0.03	-0.11	0.17	0.02	n/a
12	Supply	R	2.42	0.73	0.60	0.19	0.06	0.09	-0.01	0.05	0.03	0.12	0.20	-0.00	n/a	0.86
13	Demand	R	2.62	0.74	0.43	0.38	0.08	0.01	0.10	0.08	0.09	-0.06	0.21	0.07	n/a	0.54	0.78
14	Capital	R	2.64	0.72	0.34	0.25	-0.07	-0.05	-0.09	-0.03	-0.05	-0.10	0.00	-0.01	n/a	0.49	0.55	0.73

Formative constructs	Weight^* * Algorithm calculations based on path weighting scheme.	t-value^ All calculations based on bootstrapping with 1,000 samples or more and individual sign changes.	VIF^* ***** Average variance inflation factor.
Entrepreneural orientation			1.24
Innovativeness	0.41	6.81 ⁺⁺⁺ +++ significant at 1%.
Proactiveness	0.59	9.22 ⁺⁺⁺ +++ significant at 1%.
Risk taking	0.29	6.25 ⁺⁺⁺ +++ significant at 1%.

Improvisation capability			1.13
Creativity	0.77	12.35 ⁺⁺⁺ +++ significant at 1%.
Spontaneity	0.42	6.09 ⁺⁺⁺ +++ significant at 1%.

Flexibility			1.22
Operational flexibility	0.55	8.79 ⁺⁺⁺ +++ significant at 1%.
Strategy flexibility	0.54	8.97 ⁺⁺⁺ +++ significant at 1%.
Structural flexibility	0.18	2.47 ⁺⁺ ++ significant at 5%.

Strategy			1.58
Supply	0.53	13.64 ⁺⁺⁺ +++ significant at 1%.
Demand	0.37	14.04 ⁺⁺⁺ +++ significant at 1%.
Capital	0.30	10.52 ⁺⁺⁺ +++ significant at 1%.

	Related hypothesis	Path coefficients and (t-values)^* * Calculations based on path weighting scheme, bootstrapping with 1,000 samples or more and individual sign changes.			Support
		Change in performance
		Model 1	Model 2	Model 3
Control variables
IND		-0.02 (-0.42)	-0.01 (-0.13)	-0.0001 (-0.07)
SIZE		0.05 (0.70)	0.08 (1.13)	0.08 (1.34)
AGE		0.09 (1.25)	0.07 (1.17)	0.07 (1.22)
FINSLACK		0.33 (4,56) ⁺⁺⁺ +++ significant at 1%.	0.18 (2.28) ⁺⁺ ++ significant at 5%.	0.15 (2.00) ⁺⁺ ++ significant at 5%.
EXP		-0.05 (-0.82)	-0.06 (-1.12)	-0.05 (-0.93)
OPP		0.30 (3.38) ⁺⁺⁺ +++ significant at 1%.	0.18 (1.89) ⁺ + significant at 10%	0.16 (2.29) ⁺⁺ ++ significant at 5%.
IC		0.20 (1.99) ⁺⁺ ++ significant at 5%.	0.18 (1.95) ⁺ + significant at 10%	0.17 (2.31) ⁺⁺ ++ significant at 5%.

Main effects
STRAT	H1		0.44 (4.69) ⁺⁺⁺ +++ significant at 1%.	0.41 (4.66) ⁺⁺⁺ +++ significant at 1%.	Yes
FLEX				-0.09 (-1.46)

Interaction effects
FLEX x STRAT	H2			0.25 (3.01)⁺⁺⁺ +++ significant at 1%.	Yes

R²		29%	44%	51%
R² increase vs. Model 1			15%	22%

	Related hypothesis	Path coefficients and (t-values)^* * Calculations based on path weighting scheme, bootstrapping with 1,000 samples or more and individual sign changes.									Support
		Strategy
		Supply	Demand	Capital	Supply	Demand	Capital	Supply	Demand	Capital
		Model 1			Model 2			Model 3
Control variables
IND		-0.15	0.00	0.12	-0.16	-0.02	0.12	-0.13	0.01	0.11
		(-1.71) ⁺ + significant at 10%.	(0.07)	(1.50)	(-1.87) ⁺ + significant at 10%.	(-0.33)	(1.37)	(-1.71) ⁺ + significant at 10%.	(0.18)	(1.44)

SIZE		0.00	0.01	0.04	-0.03	-0.07	-0.05	-0.03	-0.09	-0.06
		(0.07)	(0.20)	(0.63)	(-0.35)	(-1.05)	(-0.97)	(-0.55)	(-1.27)	(-1.03)

AGE		0.07	0.09	0.12	0.02	-0.01	0.09	-0.01	-0.05	0.07
		(1.16)	(1.25)	(1.76) ⁺ + significant at 10%.	(0.64)	(-0.01)	(1.15)	(-0.12)	(-0.82)	(1.14)

FINSLACK		0.33	0.31	0.23	0.33	0.29	0.18	0.32	0.28	0.18
		(3.46)⁺⁺⁺ +++ significant at 1%.	(3.26)⁺⁺⁺ +++ significant at 1%.	(2.63)⁺⁺⁺ +++ significant at 1%.	(3.27)⁺⁺⁺ +++ significant at 1%.	(3.14)⁺⁺⁺ +++ significant at 1%.	(2.48)⁺⁺ ++ significant at 5%.	(3.61)⁺⁺⁺ +++ significant at 1%.	(3.46)⁺⁺⁺ +++ significant at 1%.	(2.26) ⁺⁺ ++ significant at 5%.

Main effects
OPP	H3a, b, c				0.14	0.36	0.28	0.14	0.36	0.24	Y,Y,Y
					(1.96) ⁺⁺ ++ significant at 5%.	(5.18) ⁺⁺⁺ +++ significant at 1%.	(2.71) ⁺⁺⁺ +++ significant at 1%.	(1.67) ⁺ + significant at 10%.	(4.41) ⁺⁺⁺ +++ significant at 1%.	(2.70) ⁺⁺⁺ +++ significant at 1%.

EO								0.06	0.07	-0.14
								(0.98)	(1.20)	(-1.60)

Interaction effects
EO x OPP	H4a, b, c							0.18	0.20	-0.24	Y,Y,N
								(1.84) ⁺ + significant at 10%.	(2.39) ⁺⁺ ++ significant at 5%.	(-2.91) ⁺⁺⁺ +++ significant at 1%.

R²		8%	11%	15%	13%	24%	17%	21%	28%	20%
R² increase vs. Model 1					5%	13%	2%	13%	17%	5%

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[1] (R): Item is reverse coded.

[2] CR: Composite reliability.

[3] AVE: Average variance extracted.

[4] All algorithm calculations based on path weighting scheme.