Depending on what you read and who you talk to, an economic downturn or outright recession may be in the works. Growth has slowed, trade is uncertain, and economic cycles inevitably cycle. What does this mean for IT organizations? And how can IT leaders help the enterprise thrive through challenging economic conditions?
The long game.
Cash is the lifeblood of any organization: large or small, private or public. As long as your organization exists, you will have cash going out (a.k.a. expenses) and cash coming in (receivables or investments). The more significant an economic downturn, the harder it is to keep cash flowing in. In response, many organizations focus their efforts on reducing expenses.
But research shows that organizations that focus on more than just cost-cutting do significantly better in the long run.
Companies that perform well on a range of plays and are better able to accelerate growth when the economy turns around again.
“The winners excelled in four areas: early cost restructuring, financial discipline, aggressive commercial plays and proactive M&A.”Beyond the Downturn: Recession Strategies to Take the Lead, Bain & Company
While cost-cutting during an economic downturn certainly has its role in helping an organization survive the cycle, there’s much more at stake. And IT is in a unique position to enable the organization to up its game across all success factors.
IT can play on offensive, defensive, and special teams.
Great football teams focus equally on three components of the game: offense, defense, and special teams. Similarly, businesses must have strong offensive capabilities to spur growth, strong defensive capabilities to cut fat, and well-practiced special teams to respond nimbly to unique opportunities.
When the economy is humming, there’s more leeway for an organization to experiment, practice, grow and flex. An economic downturn creates conditions more like a high-stakes playoff game. What the team has focused on in practice will determine if it survives to the next round.
Offense is about growth.
Growth comes from creating new revenue opportunities through R&D, strategic acquisitions, developing innovative products and services, marketing and distribution strategies, and digital transformations.
Samsung, for example, was able to grow through the last recession by taking an offensive tack. Starting in 2009, they doubled-down on R&D. Samsung increased patents filed in the US by a factor of 4 and set forth an aggressive marketing strategy to rebrand the company—what I consider strong offensive maneuvers. They went from 21st in brand value at the beginning of the last recession, per Interbrand’s global list, to 6th in 2019 (Source).
Looking forward, investments in new technology, customer insights, and competitive intelligence are critical to supporting smart growth and data-driven customer experience improvements. IT can and should offer leadership to advance each of these efforts.
Defense is about reducing waste.
Many IT organizations are thought of as a cost center and pigeonholed to the defense squad by default. But waste comes in many forms and is found all across the organization: supply chain strategies and operations (high inventory and poor logistics), products or services which should be eliminated, underutilization of talent, poor service or product quality, over-processing, and poor internal financial discipline.
IT can provide insights that help identify organizational process waste and can partner with business units to redesign workflows. Mature IT organizations offer leadership, facilitation, and data to shape and implement these improvements.
Within IT, efforts that commonly help reduce waste include simplifying the system architecture, analyzing and reducing the total cost of ownership of systems, and managing service providers more closely. These initiatives are aimed at reducing fat, but not at the expense of muscle.
Special teams break through silos.
The less glamorous, unsung heroes in a football game are special teams. They are usually made up of a few offensive and defensive players and focus on specific plays like punting, field goals, or kickoffs. The business equivalents of special teams are the cross-functional teams tasked with shepherding certain initiatives that require extended collaboration.
For example, the customer experience may be impacted by processes that span more than one organizational silo, like customer advocacy and supply chain management. IT leaders can task cross-functional teams to find areas where the silos can work together—like increasing delivery speed, streamlining product offerings, and focusing on more profitable customers.
During a downturn, it is even more important for organizations to break down silos. The free flow of information makes room for innovation, eliminates waste, and generally improves the customer and employee experiences.
The IT organization is uniquely qualified to work across silos as it has relationships and visibility across the entire enterprise. IT can bring together cross-functional initiatives to identify value streams, predict failures, expose opportunities, and innovate to stay ahead of the competition.
Check the roster: What type of IT players do you have?
Keeping-the-lights-on IT organizations are seen as cost centers.
Cost-center IT departments support the business and help things run smoothly. When cash flow dries up, they often find themselves sitting on the sidelines, squeezing resources to preserve cash. Like water carriers, ball coordinators or cheerleaders, they are relegated to trying to help the “real” players do their jobs.
Strategic IT organizations operate as growth drivers.
IT departments that fill a leadership function for the business are able to address both sides of the cash flow equation: revenue and expenses. They are seen as partners within the business and core players on the team and are always drafted to join offense, defense, and special teams.
Don’t leave IT on the sideline during an economic downturn. Organizations that play all facets of the game to improve their cash position will build new muscle and generate momentum into the upturn. And those that lean on IT team members create an even stronger foundation for long-term success.