Building Resources in a Downturn

Don Sull:

Recessions create buyers markets for rare, valuable, and difficult to imitate resources. Downturns also generate opportunities to enhance a firm's existing resources, including brand and relationships, or build new ones from scratch. Building resources when competitors are not investing confers three benefits-lower cost, more bang for the buck, and a head start when the economy turns up. McKinsey & Company studied US industrials that improved their relative performance during the early 1990's recession, and reported in a 2002 study that these companies outspent their rivals on R&D, advertising and acquisitions during the downturn. Spending to build resources in a downturn is counter-intuitive, but below are three reasons why it can be a good idea.

1. Lowers Cost of Investment
2. More Bang for the Buck
3. Headstart when the economy rebounds