Readers of this blog know that the Collaboration and Content Strategies service researches, publishes analysis, and advises clients about communication, collaboration, and content (3C)technologies and the processes around them. Unfortunately, many of the technologies we cover are relegated to the “nice to have” category by some executives, such as collaborative workspaces, social networking, portals, and taxonomy tools. As service director for this group I speak with owners of 3C technologies at a diverse set of organizations through client and sales interactions and one refrain I hear across all these groups is the difficulty of justifying investments in “new fangled” technologies in such difficult economic conditions. News of layoffs is becoming commonplace, bonuses are being cut back, lines of credit are becoming expensive or scarce, and uncertainty is reducing the scope of future purchasing plans. Understandably, many organizations feel compelled to stall improvements to 3C processes that, while perennially inefficient, have worked fine so far. What is the role of new 3C technologies when IT budgets are under unprecedented attack?
In light of this question, I read with interest a study recently published by Diamond Management and Technology Consultants that compared the performance of 400 organizations before, during, and after the previous recession (1998-2004) to see which approaches resulted in the best long-term growth prospects. The study, “Don’t Waste a Crisis: Emerge a Winner by Applying Lessons from the Last Recession,” categorized firms according to whether their performance improved, decreased, or stayed the same coming out of the last recession.
The study found that:
“Only the top two quartiles (Stalwarts and Opportunists) increased gross margins during the recession year, and by the end of the recession had improved margins by 20%. In other words, they were smart about their cuts and successfully improved the design of their business (i.e., the configuration of people, assets, capital, and information to generate value for customers) to create operating leverage that eluded others. The central lesson of our research is that at the very time when a leader is tempted to shorten his or her time horizon and make simple across-the-board cuts, superior performers dig into the data and act more intelligently than the competition.”
So how should investments be allocated during tight times and do new 3C technologies have any place in such an investment portfolio? Standard portfolio management theory, at least as I’ve always described it, talks about dividing investments into those aimed at running, growing, and transforming the business. A high level rational analysis of this type shows the fallacy of retreating to a 100% allocation of investments into “keeping the lights on” (as “run the business” is commonly referred to). The Diamond analysis looked at investments and, while omitting the “run the business” category (I’m sure it was in there!), adds another category crucial for tight times: "cut costs" (more an initiative than an investment).
I found it encouraging to note that it wasn’t just companies facing market competition, such as a consumer products company, that found opportunities to pull ahead during times when others are retrecnhing. Diamond notes that Southern Company, a utility company in Atlanta, invested in automated meter-reading in 2008 which will yield long term efficiency benefits and enable dynamic pricing in the future. Even an insurance company, an industry that is among the hardest hit by the current economic crisis, was able to:
“... identify areas to expand the use of technology to change the nature of relationships with agents and customers. Even in the face of a challenging insurance environment, this innovative insurer is reinventing how agents interact with their customers in a digital world, and investing at a time when its competition is retrenching.”
These findings provide some explanatory power to the way I describe the approach smart companies are taking towards 3C technologies that may seem unneeded when budgets are being slashed. While they can be deployed to improve vertical business processes (such as order-to-cash or communicating design specifications updates to partners), they are also used to bolster horizontal business processes. These horizontal business processes are some of the most common and fundamental to businesses, such as collaboration, expertise location, notification, searching, and documentation. These horizontal processes do not have ROI of their own, but rather act as multipliers when they are applied to initiatives to improve specific instances of business processes. I believe that investments in these technologies during tight budget cycles can not only help organizations maintain or improve current rates of efficiency as more output is demanded from each employee, but these investments put the organization in a better position to race ahead of expectations and competition once the recession is over.
The Diamond study confirms this when describing the principles they derived from their research. I believe one in particular supports examination of investment in 3C technologies: “Automate, Automate, Automate”:
“Given the continued, rapid decrease in the cost of information technology, it is essential during a recession to search for new places to automate.”
In summary, I realize this posting has been a bit longer than an elevator speech you might need when you get only a minute to describe to an executive why that new blog, collaborative workspace, or portal is needed. So here’s the short version: Companies that come out of recessions in a stronger position than they went in are those that judiciously invest in technology and related processes that let more work get done with less resources as well as reducing costly delays and red herrings when making decisions. And when the market downturn ends – and it will – opportunistic organizations will be in a better position to succeed than those that had hunkered down during the recession.