Countries around the world have been seeing the signs of a recession coming since late last year. Now, the National Institute of Economic and Social Research (NIESR) reports that the UK has already fallen into a recession. With inflation rising in economies worldwide, consumers are tightening purse strings leading to stagnant economic activity, slowing productivity and economic growth. At the same time, business leaders in industries across the board are pulling back on investments to conserve cash flows and avoid unnecessary expenditures, further hastening the coming economic downturn.
While conventional wisdom would suggest holding on to resources during hard times, in the case of a recession, conservative spending only leads to prolonged stagnation and reduced growth. What’s more, while business executives may be quick to go on the defensive, slashing operations costs to weather the downturn, the only way to stay profitable is to continue creating value for consumers and clients. It turns out the key to surviving a recession and thriving in the aftermath is preparation.
How to flourish during and after a recession
A 2010 study following businesses in the wake of the Great Recession found that of the 4,700 companies researched, only about 9% managed to pull out of the recession and flourish in subsequent years. According to the research, neither the businesses that rushed to cut costs and go “lean” nor those who doubled down on investing in new projects and technology fared much better. So, what set that 9% of companies apart?
It seems the secret to success was taking a multipronged approach. Companies that pulled out of the recession ready to accelerate employed a combination of defensive strategies like smart, selective cost-cutting focused on operational efficiency, and informed investment aimed at supporting productivity. This positioned them for better performance throughout the recession, and when the economy began to pick up, they were ready to accelerate with it. This combination of strategies seems to be the hallmark of what researchers have dubbed pragmatic and progressive companies.
Progressive Strategies for Tech and Software
For businesses in the tech and software space, staying competitive means being able to continue creating value for clients while keeping overhead and other related costs low. When your product is intangible, like software applications, products, or services, there are more opportunities for both cost reduction and improved output. The key is having the right insights to guide your strategy.
Progressive companies are those which are most likely to succeed when it comes to surviving economic hard times and are prepared to ramp up activity afterward. Two areas where progressive strategies typically excel are:
- Improving efficiency to cut costs and increase productivity
- Investing in new assets, tools, and projects
Improving operational efficiency
When facing a recession, many business executives go on the defensive seeking aggressive cost-cutting measures. One of the most common options is taking drastic cuts to staff and hiring. During the so-called Great Recession, companies like Microsoft, Sun Microsystems, and Intel, laid off thousands of workers, hoping to reduce organizational bloat and maintain profitability. Now, industry giants like Apple, Alphabet, and Meta have also been seeing an uptick in layoffs and freezes on new hires.
Businesses that are quick to cut employees in tough times often gain unfavorable reputations. When these companies look to rehire, new workers may shy away. This causes the cost of refilling those positions to rise. The good news is that there are other ways to cut costs. Prioritizing organizational efficiency can save millions per year and reduce the need for sweeping cuts to headcount and hiring.
Companies that reassess and reevaluate their business processes with a combination of tools and KPIs to support data-driven decision-making, tend to reduce their operating costs permanently. When demand begins to pick up in earnest, they can pass those savings on to customers. By keeping their costs low and their capacity high, they’re better positioned to edge out the competition and thus accelerate faster than their rivals.
For tech and software businesses, a key area to start would be streamlining the powerhouse of value generation–their software development. This could mean:
- monitoring team and developer performance
- evaluating inefficiencies in the development process
- tracking architectural stability
- assessing knowledge distribution across teams and areas of development
Software intelligence tools can provide easy access to insights in each of those areas and much more. Foreworth’s platform, for example, provides automatic, standardized, and objective KPIs for software development, as well as automatic recommendations on where and how to improve performance and efficiency. More efficient processes lead to better ROI and some of our clients have even seen productivity gains of up to 20% in their software teams.
Data-Driven Investments in New Projects
Another area where progressive companies excelled was in maintaining their investments in R&D and ongoing projects. By keeping a watchful eye on the changing needs and priorities of their customers they were able to expand their offerings in areas that were critical during an economic downturn. Of course, they invested where there was a strong likelihood of positive ROI. By prioritizing projects with the potential to pay off further into the future, they were able to set themselves up for success.
While a recession may not seem like the best time for investing in new projects or prospective opportunities, it’s not impossible. Many of the companies that carefully balanced their budget cutbacks and investment in new areas, were able to do so because they focused on improving operational efficiency early on. The resources saved by streamlining their operations were funneled into investments in new and ongoing projects.
For development teams facing an economic downturn now, ensuring the success of these projects is also a major concern. For software-based projects and initiatives, tracking performance throughout the development process is a great way to ensure greater efficiency and productivity. Having objective, detailed, and secure KPIs contributes to better strategy and more informed decision-making. With access to detailed data, it’s much easier to identify where to allocate resources and remediation efforts for improved ROI.
Stay Productive with Data-Driven Strategies
While any period of economic stagnation is cause for concern, it’s important to focus on operational efficiency and keeping ongoing projects and initiatives on track. Although your first instinct may be to slash spending, it’s still possible to do more with less by focusing on efficiency and productivity. Software development businesses can benefit from taking a more data-driven approach to managing their development projects. Reducing wasted effort, code complexity, and technical debt in development provides benefits that can sustain growth and competitiveness for years to come. Learn more about how tracking productivity and efficiency in your software development can boost your ROI here.