MIT Sloan Management Review

Downturn, Strategy

The Risk of Not Investing in a Recession

By Pankaj Ghemawat

April 1, 2009

The challenge for managers during a downturn is to find the balance between pursuing too many unprofitable investment opportunities and passing up too many potentially profitable ones.

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Editor’s note: In 1993, Pankaj Ghemawat wrote the classic article “The Risk of Not Investing in a Recession,” which addresses a question that every organization now confronts with fresh urgency. But which classic management insights still apply in the new, crisis environment? Do Ghemawat’s? Recently, we asked him. His answers are published here, as commentary annotating the original text.

Reveal Ghemawat's commentary by clicking on the highlighted passages.

Photo: Cameron Conner http://bit.ly/dvR3k

Two very different ways of thinking about investment and risk are headed for a showdown. One emphasizes the financial risk of investing; the other concerns the competitive risk of not investing. In normal times, the bearishness of the former tends to (or is supposed to) complement the bullishness of the latter. But the balance between the two seems to break down at business-cycle extremes. Specifically, at the bottom of the business cycle, companies seem... To read the complete article, login or sign-up using the form below.

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