Harold L. Sirkin: Recession Lessons: Read, React, Win

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In spite of a major decline in sales and big investments for the future, the company's financials were still respectable, especially compared with what could have been if not for the quick and bold actions of the management team in the first two months. Jaehnert summarized Brady's activities in a statement accompanying the company's Fiscal Year 2009 Year-End Financial Report (issued in September).

The CEO said the company's worst fears were realized. "After a strong first quarter," he said, "the global economic downturn caused a 27% drop in our sales over the balance of the year." Despite this, the company earned $90 million in net income excluding restructuring charges and generated $127 million in cash flow from operations.

They were able to do this because they anticipated what was happening, organized their response, and executed.

While many different lessons will be drawn from the Great Recession, three clear ones come from the Brady experience:

1) During challenging times, you need to prepare for the worst, not a rosy outcome. Measures to control costs should be implemented quickly and cuts should be deep. Waiting is precisely the wrong thing to do. There's never a bad time to trim fat. If you cut some muscle in the process, you can build it back up later.

2) Use the opportunity to do all the difficult things you know you should do but have avoided in the past because business was good. Cut underperforming people and operations. Reduce payroll costs. Reduce inventories. Halt expansion plans. Conserve cash. To show your employees the pain is being shared, freeze executive salaries and eliminate bonuses. Employees are far more receptive to tough medicine in tough times if they know the pain is being felt at the top, too. You need to lead by example.

3) Re-invest to win in the upswing. Managing to win during a recession is not just a matter of circling the wagons. There is also an offensive component—seeking possible merger-and-acquisition opportunities, keeping your eyes open for newly available top talent, stepping up product development and research-and-development activities. The important thing is to take control. To the greatest degree possible, the recession shouldn't dictate what you do. You need to anticipate. Have your own agenda and execute.

As difficult as Great Recession has been, it will be easy to forget when the economy fully recovers. That will be the biggest mistake of all: forgetting.

The lessons you learn from this recession can create an advantage for you in the next. As the saying goes, those who don't remember history are doomed to repeat it.

Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group and author, with James W. Hemerling and Arindam K. Bhattacharya, of GLOBALITY: Competing with Everyone from Everywhere for Everything (Business Plus, June, 2008).

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