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Forerunners should spend even in a recession

According to a fresh doctoral dissertation, belt-tightening can undermine future growth.

Many companies react to a weak economic situation by tightening their belts - often against their own interests. Juhana Peltonen, M. Sc. (Tech.), noticed in his doctoral dissertation research that it is worthwhile to prepare for better times by investing – at least if a company is a forerunner in a field undergoing growth.

For his study Peltonen examined small and medium-sized Finnish software enterprises during the economic crisis that broke out in 2008. The source material for his study consisted of three annual software company surveys and registry material from 2007–2011. In contrast to the Finnish national economy, small and medium-sized software enterprises made it through the financial crisis with a brief dip. Companies that boldly invested in their activities even in the bad years experienced especially high growth, while cutting back undermined growth in better times. This applied especially to forerunners – enterprises whose moves are often monitored by competitors, and which are often the first to bring new products and services onto the market.

A cool head at the wheel

Peltonen also studied the impact of external pressures on corporate decision-making and noticed that social relations play an important role in it. Both desires to hire and to reduce personnel seem to have spread easily in networks formed by board members of different companies. Peltonen says that there are dangers in following the leads of others.

‘Surviving a recession is somewhat akin to driving a car toward a new destination, but without a navigator,’ he explains

‘Sometimes advice can be useful but usually the driver is the one that is most familiar with the car and knows how to find a speed that is suitable for it. In those cases it is best not to worry about how fast the others are going to their destinations.’

Juhana Peltonen, M. Sc. (Tech.), will defend his doctoral dissertation on Friday, 12 December 2014 at 12:00 noon at the Aalto University School of Science, lecture hall AS1, Otaniementie 17, Espoo. The title of the thesis is Strategic Management of Entrepreneurial Firms during Recession and it can be read on line here.

Further information

Juhana Peltonen
[email protected]
+358 40 5084020

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