As technology and business automation advance, more and more businesses turn to digital transformation to improve processes, smooth workflows, and increase revenue. But what happens when a recession hits? Is digital transformation still viable? Should businesses further invest in digital solutions or stop spending on digital innovation?
Since we may be headed toward a recession, these are valid questions for companies to be asking. Recessions create a delicate balance between knowing when to cut back and continue moving forward. While recessions are often treated as a disaster for business, several companies have altered their business models that not only allowed them to weather the recession but come out on the other side stronger than before.
What is a Recession?
Let's take a step back and review some basics. A recession is a significant decline in the economy that happens over the course of several months or even years. According to Forbes, a recession is declared “when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.”
Recessions are common throughout history and many businesses stay on alert so they’re ready when another recession may hit. With the COVID-19 pandemic, countries experienced millions of jobs lost, lock-down regulations, people choosing to stay at home to remain safe, and a decrease in general spending. With all these factors, it’s no surprise that many businesses are preparing for a possible upcoming recession.
Recessions always present difficulties, but there's also a chance for opportunity and it's important for businesses to consider these opportunities including:
- - An urgency to reevaluate processes to determine if there are any inefficiencies that can be solved to increase efficiency
- - Less competition in the market
- - Highly talented people looking for employment
- - A change in customers’ needs as they look for more convenient or economical alternatives to their purchases and services
Considering these opportunities during a recession or before a recession is declared, can help businesses shape their strategy and digital transformation to push through the recession.
How Digital Transformation Helped Companies in the Past
We don't need to go back far in history to see how digital transformation helped companies through a recession. One such example is Netflix, a streaming giant that really took off during the 2008 recession. What started in 1997 as a company that rented and mailed DVDs to customers has now become one of the biggest streaming companies in the world. One aspect that catapulted them into their position was how they handled the 2008 recession.
Netflix launched its streaming service in 2007, just a year before the recession. Many people didn't believe it was going to last. However, Netflix offered a low subscription cost making their service a viable option even for those who were unemployed or had limited income.
They also partnered with Roku, Microsoft, LG, and other streaming services so that users could stream Netflix on a variety of devices including video game consoles. By using streaming technology and partnering with other companies, Netflix was able to better connect with prospective and current customers, offering them a wide range of selections and the ability to stream from various devices.
Now we see Netflix creating their own original shows and movies while continually improving their streaming service based on the analytics they received from the usage of their service. By finding that opportunity to provide a convenient digital platform for people to still be entertained at an economical rate, Netflix weathered the 2008 recession.
Another company that changed its business strategy due to the 2008 recession is Mailchimp, an email marketing service. Mailchimp was originally developed for enterprise businesses. However, with businesses cutting costs in 2008, MailChimp needed to change its business strategy and find a new way to gain revenue.
In 2009 they introduced their freemium platform, opening their technology up to a whole new market of small and medium businesses. Because of this, they saw a tremendous spike with 85,000 users gained within a year. They leveraged their technology and expanded their customer base to increase their revenue.
Both Netflix and Mailchimp found opportunities through digital transformation or using their existing digital platform during a recession and leveraged them to create a recession-proof plan.
How Digital Transformation Aids Businesses in the Current Recession
So that was the last recession, but what are companies doing now to keep revenue coming?
When the pandemic began and the lockdowns took place, many businesses scrambled to put digital solutions into place so they could remain connected to their customers and enable their employees to work efficiently from home. Digital technologies helped smooth the transition between working from the office and working from home. With their digital solutions still in place, businesses may find themselves at an advantage again during the recession.
Businesses continue to use their digital solutions or invest in digital solutions that give more power to the customers. As an example, some companies are investing in tools that offer self-service options which both simplify the purchasing process and give customers more control over their purchasing such as buy online pick up in store services.
Companies are also focusing on a digital-first touch point for their customers which, once again gives, more control to the customer to receive the service they require. This includes service portals, e-commerce stores and apps, and more.
Recessions require a delicate balance between businesses cutting costs and spending more. Many companies are trying to decide where that line is - where to focus on spending and where to focus on cutting. Businesses not only need to think about weathering the current recession but also recovering after the recession.
Throughout the decades, one constant has been the advancement of business through the internet. Businesses are still trying to find ways to leverage this to better connect with their customers. For this reason, companies may choose to invest further into online options and digital solutions. Despite multiple recessions, the internet has continued to advance forward.
Ensuring Your Digital Transformation is Recession Proof
Looking at the companies that thrived in 2008 and the companies that are pushing ahead now, there's a pattern to be noted here. Once a recession hits, companies focus on current customer needs. Just as the recession changes the needs of a business, the consumers' needs will also change. Companies need to reassess the needs of their current customers and prospective customers to provide an innovative solution that solves any current problems.
We saw Netflix do this by providing entertainment that was inexpensive so that those who had lost their jobs could still have entertainment in their own home. They didn't need to use gas to go to the store and rent a DVD; they were able to select a movie they wanted to watch on a streaming service, and thus Netflix took off. MailChimp is much the same way by expanding their customer base and providing more people with their digital platform.
So is digital transformation recession-proof? The answer here is yes, but it's imperative to invest in the right digital solutions. Businesses that look into opportunities and refocus their efforts on what their customers need now, can find digital solutions that help connect and entice customers. At the same time, recessions offer businesses the opportunity to discover ways to be more efficient while decreasing costs.
Final Thoughts on Digital Transformation During the Recession
Businesses that cut spending in digital transformation may find themselves behind by the time the recession ends. It's not only important to think about how to respond in the face of a recession, but it's also important to consider how the business will recover from it.
During a recession, businesses need to leverage the digital solutions they already have in place and invest in digital solutions that will meet current customers' needs. This may include creating a digital-first touch point or using digital transformation to further expand your customer base.
No matter the economy, technology and automation continue to surge forward. When reassessing spending, businesses need to continue to leverage digital transformation to make their business recession-proof.
Learn more about how digital transformation can improve your business by reaching out to us at Exela Technologies. We will help you find ways to increase savings and improve efficiency with the right digital solutions.
