We expect to see a boom in Technology spend by organisations during the economic recovery following Covid-19.
Investment in Technology during a recession, has been shown to help organisations thrive afterwards. In a 2017 paper, Brad Hershbein (of the Upjohn Institute for Employment Research) and Lisa B. Kahn (of the University of Rochester) compared more than 100 million online job listings posted from 2007 to 2015 with economic data to see how the recession affected the types of skills employers were looking for. They found that the cities hardest hit by the recession saw a greater demand for technology related skills.
Organisations became more digital with the hardest hit areas of the United States, increasing their investment in information technology, driving a surge in IT skill requirements.
So why did these companies invest in technology during a recession when money is tight?
- Technology enables organisations to be more transparent, flexible and efficient. Enabling leaders to better understand the business, how the recession is affecting it, and where there’s potential for operational improvements.
- Technology can help cut costs – Focus on “self-funding” transformation projects that pay off quickly, such as automation of manual tasks and outsourcing non-core business activities.
- IT investments make companies more agile. Improving the ability to manage uncertain and rapid change that comes with a recession.
In manufacturing, after the last recession there was an uptake in the adoption of digital and advanced analytics. Previously manufacturers could be the cheapest in the market or could stay nimble—but not both. Flexibility came with serious costs. However, digital technologies have created much more flexibility around product changes, volume changes and the ability to optimise the supply chain around the world.
Organisations that make investments in digital technology, analytics, and agile business practices will be better able to understand the threat they face and respond more quickly. Recessions can create wide and long-standing performance gaps between companies, with research suggesting that digital technology can do the same. Companies that neglect digital transformation may find that they do not survive the recession.
For organisations with a high level of debt, it is important to deleverage and ensure cash flow remains positive. It is important to look at cost savings opportunities before reducing headcount.
The organisations that emerged from the last recession in the strongest shape relied less on redundancy to cut costs and leaned more on operational improvements.
The reasoning behind this is that redundancies are not just harmful to workers; they’re costly for organisations and can demoralise the remaining team, dampening productivity at the very time it needs to be maximised. Hiring and training is an expensive and long process, so many organisations prefer not to have to rehire when the economy picks back up, particularly if they think the downturn will be brief.
So what can organisations do to reduce outgoings, maintain cash reserves and improve capability from a technology perspective:
- Focus on projects that pay for themselves, with a clear benefits realisation plan.
- Critically review all expenditure, do you really need all that expensive proprietary software – Can you exploit Open Source solutions or adopt As a Service offerings.
- Outsource non-core functions, utilising global experts and capacity to flex your service as demand ebbs and flows during the recession.
- Re-train your people to support core business tasks, to enhance revenues and increase morale. A happy workforce is a successful one.
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