What you can learn from history about innovating during a crisis – Board of Innovation

Their results were brutal. 80% of companies endured a painful recovery, with only 9% of the sample group improving their performance and outdoing rivals in their industry.

Harvard Business School came to the same conclusion we did. The secret is striking the right balance between defense and offense. Successful companies are those that cut costs to survive while simultaneously investing in future growth.

As you might imagine, doing these two things at the same time is not that easy – we’re just hairless monkeys, after all. You’ll have to explain to your team why some are asked to bear the burden while others are spending where no immediate benefits are apparent.

Target handled it well. During the 2000 recession, Target worked hard to reduce costs and improve efficiency. For instance, it was one of the 12 founding retailers of the WorldWide Retail Exchange; a marketplace meant to facilitate trading between retailers and vendors. In January 2001, the company also consolidated the brands Dayton’s and Hudson’s under Marshall Field’s.

Target’s offensive strategy had different angles. Their capital expenditures increased by 50%. They opened 160 new stores, added 58 new SuperTarget locations, and re-designed them to place extra emphasis on essential products like food. Their marketing and sales expenditures increased by 20%. They ramped up credit-card programs and expanded into new merchandise segments. Finally, they set up partnerships with Amazon and asked well-known designers to create new products.

By combining these two strategies, Target managed to grow its sales by 40% and raise profits by 50% over the course of the recession. Their profit margin increased as well, from 9% in the three years before the recession to 10% after it.