All industries have life a cycle and they all respond differently to recessions. Furthermore, different sectors enter and emerge from downturns at different times and at different rates.
Industry life cycles are based on performance relative to the overall economy. Your industry’s cycle reveals important information about product strategy, growth prospects, target markets, and client servicing. Many of these have shifted or will probably shift during this downturn.
Having a good understanding of where your industry is, your place within it, and how it has been impacted by the recession, as well as being clear on where you want to be when your industry recovery happens, is key to guiding your decisions and planning for the future.
This awareness and knowledge will also provide a better understanding of how your clients’ needs may have changed so you can update or repackage your products or services accordingly. Conversely, waiting too long to begin your analysis or planning will put you behind what your competition is working on behind closed (virtual) doors, which can have dire consequences.
Due to the specific circumstances of the current emergency, some industries that did well in past recessions may be struggling with this pandemic-induced recession instead of a traditional financially-driven decline, as happened during the Great Recession.
One of the challenges in understanding the impact of a recession within your industry is anticipating the speed and type of the general recovery. Economists refer to recoveries in terms of letter shapes (V-U-W-J-L)[i] . For example, a V-shaped recovery occurs when a recession happens very quickly, and the economy recovers just as quickly. Whereas a L-shaped recovery has the same steep decline, but a long, slow recovery.
Irrespective of the speed of a recovery, whatever alphabet soup letter that might be, the decisions you make today can enable you to leap-frog your competition tomorrow.
As illustrated in the graph below, if your company was positioned at “A” in your industry before the recession, the question you need to ask yourself is do you want to claw yourself back slowly to the same point A during the recovery or do you want to reach new heights such as getting to move to point C where you can reach new heights for your business?
Furthermore, missing your industry cycle could leave you below previous levels reached by the company.