Technology Investment

Part
01
of two
Part
01

Technology Investment

Technology investment during hard economic times is even more crucial for business progress. Companies that have employed defensive cost-reduction strategies in the face of economic downturns in the past (such as Sony) still struggle to keep up with competitors. However, investments must not be too aggressive (as in the case of Hewlett-Packard), as a company could struggle to recover later. Companies have to employ a balance when they are making tech investments. Investments must not take too long to generate paybacks and must also resonate with customers.

Cases of Businesses Which Made or Failed to Make Tech Investments During Recession and Their Outcomes

  • Sony employed an extreme cost cut-back strategy during the 2007-8 global financial crisis, postponing all kinds of investments. The company still struggles to beat Amazon, Microsoft, and Samsung. It found it hard to recover from the dip in sales, which was a fall to 1% from 11% three years earlier.
  • Hewlett-Packard is an example of a company that made excessively aggressive investments. The company made a $1 billion investment to make IT available in developing countries, among other overly optimistic investments. After the 2000 economic stress, Hewlett-Packard experienced a dip in profitability compared to competitors.
  • Its profits continued to go down 3 years after the recession. In 2004, Hewlett-Packard earnings were at 8.4%, while those of IBM and Dell were 16.8% and 9.3%, respectively.
  • Target is an example of a company that invested right. For instance, it expanded its internet business and made supply chain operations more efficient.
  • It founded an electronic marketplace known as the WorldWide Retail Exchange during the 2000 recession to ease trading between retailers and vendors. The company grew sales and profits by 40% and 50% respectively during the recession.

A 2018 Report Indicates that Economic Downturns Encouraged Businesses to Invest in New Technology

  • In the report, job listings posted in 2007-2018 showed a high demand for tech-related skills. The findings were after a comparison of more than 100 million jobs posted online.
  • Cities in the US, which were hardest hit by the recession, showed a higher demand for computer-related skills than other cities. The increase in jobs was because companies increased their IT investments.
  • According to a theory by economists, companies are unlikely to diverge money into new technologies when the economy is doing well. They would rather focus on maximum production during good times than tie up capital in new technology.
  • During a recession, there is less demand for goods. Businesses are more willing to spend on new tech as they have more operating budget, and technology is less expensive.
  • Katy George, a partner at McKinsey, said that businesses need to invest in technology during a recession to improve business analytics and increase business agility, as well as cut costs.

CEOs Continue to Invest in Technology for Growth and Productivity Despite Hard Times



Part
02
of two
Part
02

Technology Investment: Case Studies

Groupon, Netflix, and Amazon were three companies that grew during the time of the Great Recession of 2007-2009. Each company invested in technology, and it helped each of them become the business giants that they are today.

Case Study #1: Groupon

  • Groupon launched during the Great Recession of 2007-2009. They provide coupons and discounts for many items, businesses, vacations, etc.
  • They invested in a team of writers to lure customers into wanting to know more about the company.
  • They offered incentives to customers and business owners hurt by the recession.
  • Groupon turned to using technology by emailing customer daily coupon codes during this time.
  • Their subscribers would anxiously await the coupons in their emails every day.
  • Starting by using writers and emailing customers helped them become who they are now because it allowed them to build a client base and to continue to grow into a billion-dollar company.


Case Study #2: Netflix

  • Netflix started as a DVD rental company and then turned to online streaming right from your home for a low monthly cost.
  • Netflix grew during the Great Recession of 2007-2009.
  • Netflix invested in itself becoming a streaming platform and taking away the inconvenience of driving to Blockbuster or other movie rental stores.
  • They chose to invest in streaming services to help those who could not afford movie rentals or cable TV to be able to enjoy movies.
  • Creating a movie rental/streaming service during the recession helped Netflix grow because it changed the way people watch television and provided convenience to those that didn't have time to go and rent a movie. It also provides this service at a monthly fee, and you can watch how many movies you want during that month.


Case Study #3: Amazon

  • Amazon retail stores suffered during the great recession. However, Amazon.com invested in online shopping, and the Kindle 2 was released during the Great Recession of 2007-2009.
  • Amazon released the Kindle 2 during this time for the holiday season.
  • Amazon offered discounts on items sold through online shopping to provide affordability to customers.
  • During the Great Recession, Amazon was able to grow in profit, sales, and customers. Ever since, they have been growing more and more. If another recession were to happen, many customers would turn to them due to their Prime membership.

Research Strategy

To locate US businesses that invested in technology during times of economic hardship, we researched the news outlets for companies during the Great Recession that were successful and continued to grow. In our research, we also searched for how well the companies are doing now. What their strategies were during these times, and if they continue to grow. We found news articles from 2009 as well as news articles from 2019 to help collaborate the information for all three companies.
Sources
Sources

From Part 01
Quotes
  • "By investing in technology and innovation during a recessionary period, you place your company ahead of the competition now and in the future when the marketplace rebounds."
Quotes
  • " An increase in expenditures for new fixed investments is anticipated by 42% of CEOs, between last quarter’s 37% and nearly equal to last year’s 43%. Technology is a key area of investment, and CEOs’ goals for investments in new technologies were to position their companies as innovators and leaders in their fields, to enhance their ability to gain and keep customers, to lower costs by streamlining operations and procedures, to improve productivity, to attract and retain employees, and to reduce overall costs."