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
- According to the Vistage CEO Confidence Index survey, CEOs were willing to invest in technology for efficient operations despite a downward economic trajectory.
- 52% of CEOs said they would spend up to 4% of their revenue in new technology.
- Technologies would revolve around improving customer service, improving manufacturing, boosting sales, and increasing cybersecurity.