One glance at the stock market is enough to convince anyone that we’ve entered a recession. Sure, this time the coronavirus pandemic was the precipitating cause, but the business cycle is inevitable, right? Bear markets inevitably follow bulls, and periods of economic growth inevitably need to take a breather now and then.
The inevitability of periodic recessions is indubitably conventional wisdom, as is the challenge of recovering from one. Businesses and consumers have pulled back on their spending, and no one wants to resume expenditures until they see everyone else doing the same. The same herd mentality that leads us into recession makes it difficult to climb out of the hole it creates.
Just one problem: now is not the time for conventional wisdom. It’s time for pandemic wisdom. The current downturn isn’t like other recessions. Look around you. Are people or companies behaving like they would in a typical recession? Of course not.
Precedents won’t help us understand the economic forces at play – and they certainly won’t give us good advice about how to survive this unprecedented downturn. Instead, we must look at the fundamentals. What is still working during these dark times? What can we count on to pull us through? The answer: technology.
The Backbone of the Economy
In a recent article for SiliconANGLE, I explained how digital technologies are the backbone of today’s economy. Digital – the application of IT to meet the needs and preferences of customers and employees – has become more important than ever now that people are working from home (WFH).
Today’s unprecedented WFH trend, however, is but one part of the new emphasis on technology – especially in large enterprises.
Cybersecurity is more important than ever. Cloud computing, with its ability to provide a range of capabilities at scale anywhere in the world, is mission-critical. And the global financial system remains invulnerable to the coronavirus, largely because of its decades-long dependence on mainframes. The list goes on.
IT has been essential to the workings of enterprises around the globe for more than half a century, of course – and it has been subject to the ups and downs of the business cycle just like any other part of the economy.
Only this time, it’s different. The coronavirus hasn’t hit all parts of the economy equally. Instead, it has hit the social part – those parts of our work lives where we interact with other people. As a result, those human parts of the economy have either moved to digital – or stopped altogether.
Given this unprecedented nature of the current downturn, what should you do to mitigate the risks and come out ahead when it all blows over? Here is some advice.
Advice for Enterprises
The pandemic is hitting enterprises unevenly, depending both on the nature of their industry as well as their success with digital transformation. In some cases, an industry is in for a world of hurt no matter what. After all, it doesn’t matter how good an airline’s IT is if nobody wants to fly.
For other industries, including all of financial services, IT is more important than ever – and it depends on an ecosystem of technologies. The WFH trend, for example, requires better online collaboration tools to be sure. But it also requires more tech support. Secure, end-to-end Internet connectivity. Access to core business applications. Business continuity capabilities like backup and failover. The list goes on.
Perhaps most importantly, such enterprises must still serve their customers – only now, such service is digital. Digital transformation is no longer a long-term nice-to-have. It’s a must-have, and such companies need it now.
For enterprises in this ‘IT survivors’ category, now is not the time to scrimp on IT spending. On the contrary, the economic downturn is an excuse for shifting investments away from other areas to IT. Digital capabilities will be essential to the long-term viability of such companies, so pulling back from investing in tech will simply hasten these organizations’ demise.
Advice for Established IT Vendors
For software and hardware vendors whose products are relatively complete, and thus their efforts are more toward customer growth than product development, the goal should be to focus on serving the ‘IT survivor’ enterprises.
True, every customer is important, but the IT survivors are the ones that have a reason to continue to invest in IT during the pandemic. For established vendors, therefore, pulling back isn’t the answer – shifting focus is.
Among the vendors serving the IT survivor community, the battle will be for market share. Some vendors will be pulling back, while others will not. The ones that are pushing ahead will take business away from the others, positioning the risk-takers well for the end of the downturn.
Advice for Startups and Growth Vendors
What about those IT vendors who are still building their products and driving innovation in the marketplace? Now is not the time to take your eye off the ball. Smart innovators are actually doubling down on investing both time and money into innovation.
WFH won’t slow these vendors down – and neither should fear of an economic downturn. Remember, IT is the backbone of the economy, and enterprises must depend on IT to survive. They will need the innovation that these smaller vendors are bringing to market – and the sooner, the better.
For the investors supporting the innovation segment of the enterprise IT marketplace, now is not the time for you to have second thoughts either. You’re risk takers on a good day. Today, the bets may be riskier, but so are the potential payoffs.
If anything, this period of turmoil is the best possible time to invest, as many established IT vendors will take their eyes off the ball (in spite of my sage advice), while innovative IT capabilities will be more important than ever to enterprises that are positioning themselves, not only to survive the pandemic, but to thrive afterward.
The Intellyx Take
Doubling down during periods of economic recession is a contrarian move that must be made with care. After all, if revenues drop then expenditures must also. For investor-funded vendors, reaching breakeven before running out of runway is also an ever-present consideration.
Nevertheless, phoenix rising from the ashes stories always come out of downturns. The dot-com crash of the early 2000s led to the rise of social media, and the financial crisis of the late 2000s gave rise to the full breadth of digital technologies we enjoy today. Neither trend would have happened if some vendors hadn’t focused on innovation and market share during those recessions.
Today’s pandemic-driven downturn increases the importance of doubling down on IT dramatically, as technology stands alone as the backbone of the economy.
Betting on IT at this time, therefore, isn’t just a bet on your own company’s survival, but the survival of the economy as a whole. Place your bets wisely.
Copyright © Intellyx LLC. Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. Image credit: Full Tilt Poker.
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