History suggests that even the deepest downturns can create huge opportunities for companies with money and ideas.
Recent turmoil in global financial markets and its spillover into the real economy have generated considerable interest in the Great Depression. There’s much to be fascinated with, both in the parallels (banking failures, a large spike in real-estate foreclosures, and global uncertainty, for example) and the points of contrast (such as the speed and coordination of the response of central banks and finance ministries in 2008).
Can the business practices of the 1930s yield useful lessons for executives setting priorities in today’s uncertain and evolving environment? For investments to promote innovation, the answer may be yes. Executives are often told to maintain investment during downturns. It’s easy to question this countercyclical advice, however, in times like the Depression or the present, when the volatility of financial markets (an indicator of uncertainty) reaches historic highs. Is the typical behavior of executives—act cautiously and delay investment projects until confidence returns—the wiser course?
Many companies hesitated to innovate during the 1930s. Consider, for example, patent applications as a proxy for resources devoted to innovation. The growth rate of US patent applications by companies with R&D laboratories was considerably lower during the 1930s than in the preceding decade. On the whole, corporate executives considering plans for research investments preferred to wait and see.
The McKinsey Quarterly