Introduction and Research Objectives This report reviews the available literatures in order to: (i) identify the pressures, threats and opportunities facing businesses operating in difficult economic conditions such as those currently being experienced in the UK and globally; (ii) identify the strategies adopted by businesses that have experienced such conditions; and (iii) assess which strategies proved to be problematic and those that have allowed businesses to respond dynamically, survive and emerge strongly as economic conditions improved. Sources for the report include academic studies of business responses to recession and other 'environmental jolts', contemporary commentary on the current crisis, and the deliberations of a 'think-tank' involving leading academic experts on business strategy and management. The literature directly focused on business responses during recession is limited and partial. The search was, therefore, extended to wider literatures on business responses to Advanced Research in Economic and Management Sciences (AREMS) Vol.5. October 2012 ISSN: 2322-2360 WWW.universalrg.org 105 environmental shocks/jolts, 'endgame' strategies in declining industries and business turnaround. These literatures provide support for the analysis presented, although their relevance to recession conditions has to be demonstrated rather than assumed.
Uncertainty Previous recessions provide pointers to possible business responses but, given the specificities of the current crisis, it is difficult to predict trends or prescribe courses of action with a high degree of confidence in their likely success. The increasing globalisation of economic activity -the interconnectedness of economic activity across national frontiers -renders the current crisis different from previous recessions. The current recession may well constitute a 'structural break' or 'phase shift' in the economy, in which the previously held assumptions about how it functions and economic models are open to question. The outcome of the current recession may be a new economic order, the nature of which cannot be fully understood today. Recessions impact unevenly on industries, countries, regions and firms. There is, therefore, no single 'recession effect' for businesses, nor any particular 'best way' to adapt to recession conditions applicable to all businesses. Recessions generate contradictory tendencies, for instance, declining aggregate expenditure and falling input prices. Organisational inertia and opportunity. Adapting to environmental shocks, including recession, is a capability business leaders have to develop in order to survive. One view argues that, during recession, incumbent firms tend to suffer from organisational inertia, which prevents them from adapting appropriately to environmental shocks. Conversely, the 'pit-stop' theory of business behaviour in recession treats firms as more willing to innovate because the opportunity costs of not undertaking such action are lower than during more buoyant times. Both UK and interna...