Rising inflation in economies worldwide is driving increased fears of a global recession. New research from the World Bank finds that the synchronous rise in interest rates from central banks may be inching economies closer to a global recession. While efforts are being made to curb the resulting contraction in growth, more and more industries are already preparing for what may be a tough year ahead. For many software executives, this grim economic outlook could provide a key moment to re-evaluate current business strategies.
Slashing operations costs to conserve cash flow is a popular strategy in the face of an economic downturn, but this is only half the battle. Staying profitable means continuing to generate value and pursuing growth even in the face of adverse conditions. In a previous article, we looked at how tech and software companies can leverage powerful software development insights to make their teams more cost-efficient while improving productivity, reducing costs, and maintaining a competitive edge. In this article, we’ll be looking at key strategic areas where software insights can add value.
Key areas for review
While many businesses are becoming more cautious with their spending and new initiatives, this isn’t to say that they’re going dormant. In most cases, it’s business as usual. New projects, R&D, mergers, and acquisitions are all still on the table. However, businesses trying to stay profitable during an economic crisis have their work cut out for them. Key areas that you may need to re-evaluate include:
- Development ROI and investment
- Human resource allocation
- New acquisitions
Balancing Product Input against Output
With consumers and businesses alike tightening their belts, it’s important to constantly evaluate the ROI of your active products and features. Positive ROI is a good sign that they’re contributing to the health and well-being of your business, but it may not always be enough. If your existing products or features aren’t driving top-line growth, how long can you justify supporting them?
If certain software products or features are not strong contributors to your bottom line now, they could become deadweight when hard times hit. This is why tracking the profitability of software projects and products over time is so important to ongoing success. Monitoring the resources allocated to each of your active software products supports greater visibility and better-informed decision-making.
The insights gained from monitoring your resource performance, as well as how and where they’re allocated can help you to identify effort-intensive products that may not actually be performing up to expectations. Identifying underperformers early on can help with reallocating resources to more profitable endeavors when faced with shrinking budgets. When combined with insights into the ongoing ROI of your ongoing products, data on developer effort allocation can be a powerful tool.
Managing Talent in Times of Crisis
Ahead of an expected recession, it’s important to re-assess your talent needs and cut hiring decisions down to the bare essentials wherever possible. As growth slows down across industries, many businesses may become more conservative with their talent acquisition investments. This often means slower hiring processes or full-on hiring freezes. Organizations that aren’t well insulated against the brunt of an economic downturn will end up facing tough calls. These can include rescinding job offers, furloughing employees, or even laying them off altogether.
Managing your talent resources well often requires a more comprehensive understanding of your organization and strategy going forward. For example, if you’ve found that a product or feature isn’t profitable enough to justify maintaining support for it, you may choose to close it down. What this means is for any rotation on the teams attached to that product, it may not be necessary to backfill those positions immediately.
At the same time, rather than letting teams go after shuttering support for legacy products or underperforming services, they can be reallocated to other, better-performing areas. This can help conserve key talent and bolster performance in high-value products. Looking at the long term it can even reduce the cost of talent acquisition when things start picking up.
R&D for new Target Markets
Research and Development is a common target for downsizing when budgets are constrained. However, many tech businesses that came out of the 2008 recession ready to accelerate went against the grain and doubled down on their R&D projects. This contributed to a successful rise out of the financial crisis and their success in subsequent years. While maintaining investments in R&D projects can be advantageous, choosing which projects to focus your investment on is what makes all the difference.
In tough economic times, it’s important to focus on activities and projects with a higher likelihood of return. Rather than targeting new markets or ICPs, focusing on your existing users and customer profiles can be the more secure route. While this could mean having to shelf current R&D aimed at prospective markets or initiatives, it also frees up your budget and team capacity to be reallocated to higher priority areas like projects aimed at securing your current customer base.
Given that it can cost up to 6 times more to attract new customers than to hold on to your existing business. It only makes sense to double down on efforts that will support your existing customers and secure your bottom line.
Managing new acquisitions
New acquisitions can often create new complications for businesses largely stemming from the unique challenges they present. Even at the best of times, post-acquisition integration tends to be fraught with difficulty for managers and employees. An economic downturn only adds to the pressure. One way to ensure that the resulting work of identifying, assessing, and allocating new resources goes smoothly, is to keep sight of why the acquisition happened in the first place. What did the new acquisition offer your organization, and how can you leverage both existing and newly acquired talent to capitalize on this?
Key questions you might want to ask when managing a new acquisition include:
- Does this acquisition come with a new tech team or department?
- How does incoming talent stack up to talent needs in your organization?
- What skill sets coming in can fulfill current hiring needs?
- What roles (if any) are redundant? What can you do with them?
Regardless of external economic conditions, a key caveat of acquisitions is the challenge they present to management. While the volume of resources may swell quickly, knowing what to do with it becomes much harder as transparency and efficiency can often suffer. Gaining a clearer understanding of what’s going on in your post-acquisition organization is therefore essential to successful integration efforts. The best way to achieve this is to ensure adequate visibility into the work on your ongoing projects and products.
For tech and software-focused organizations, solutions like business intelligence or software intelligence platforms can provide executives with accessible, objective, and automatic metrics on current projects. Foreworth’s platform, for example, provides deep insights into team composition, both positive and negative trends in productivity, and helps with identifying areas for improvement. Our intelligence tools also offer recommendations for remediating productivity and security issues. These insights can be leveraged to make better-informed decisions, which is critical when businesses are trying to keep costs down.
Invest in visibility
In any period of economic crisis having a strategy and an action plan that you can trust is key. This can prove especially challenging without having enough of the right information to guide you, it’s worth investing in a system to provide the insights you need to make the tough calls and navigate the challenges of an economic downturn. The good news is, this is an investment that will serve you well throughout a crisis and after, with clear data to help your development teams to perform at their best. Learn more about how you can prepare for a coming recession in our article here.
About the authorJuan Pablo González
Working as Foreworth’s Chief Technical Officer, Juan Pablo (JP) manages the company’s technical strategy. With nearly 20 years of experience in software development, he ensures the development process at Foreworth is meeting its keys objectives and technical requirements.More info →