by Rob Bernshteyn
The recession may not be real for all economists, but it is all too real for businesses around the world. Organizations are looking for ways to protect themselves, with many cost cuts, including the jobs of thousands of people who have helped these companies through a global pandemic.
The mentality of the recession pack is clear: cut costs, cut costs and cut costs. In the technology sector, this mentality has taken hold in both established brands and startups: this year, nearly 300 American technology companies laid off 45,000 employees in October.
Technology is not alone. The reductions extend to all sectors, segments and markets. Tens of thousands of jobs are disappearing from manufacturing, health care, real estate, financial services and retail.
The truth is, recession doesn’t have to mean retirement. Smart decisions made in difficult times can be the foundation for years of success. But organizations must be prepared to make smart market choices, invest in their digital core, and get closer to their customers. Now is not the time to retreat and hope things will go well; now is the time to take control of expenses, invest smartly in your business and fuel long-term growth.
Resilient businesses invest and grow
I understand that each company will make its own choices. But I assure you there are better ways to prepare for and survive a recession than to simply cut jobs. Resilient businesses don’t cut and burn; they control, invest and develop.
It is not a matter of opinion. We hosted business leaders with McKinsey & Co. to discuss lessons learned from the 2008 recession. McKinsey revealed data for 1,500 US and European companies between 2007 and 2011, using total shareholder return (TRS) as a common indicator to assess resilience.
Real-world information reinforces that cutting jobs and operating costs alone makes it harder for a company to survive a recession and grow after it. Resilient companies often increase their advantage in times of recession.
The companies surveyed found ways to continue to build their OEE and market leadership. In 2009, when the 2008 recession bottomed out, resilient companies had increased their EBITDA by an average of 10%, while their industry peers had lost nearly 15%.
A decade later, nearly 70% of these resilient organizations remained in the top quintile of their industry. They’ve relied on greater visibility and control over spending, better choices, and smarter business to create a competitive advantage that’s proving hard to overcome for those pulling out of the recession instead of leaning in.
Key to the success of these leading organizations is their ability to use real-time data for every aspect of resilient business, from suppliers to customers. They acquire new knowledge about risks. They have visibility on every dollar spent. They have the tools and knowledge to maximize value at every stage of their operation. Instead of investing less, resilient companies see an opportunity to invest smarter.
Sustained growth and success
This path goes directly through the back office, the brain of every business process. Digital transformation has long focused on the end customer, but that trend is changing. Digital transformation initiatives in operations such as treasury, procurement, supply chain and finance are driving sustained growth and success.
This growth is a fuel to counter the pressures of the recession. A smart and connected back office supports greater efficiency and agility. With unparalleled spend visibility, businesses benefit from real-time insights, as well as continuous innovation and risk monitoring. Back-office transformation is widening the capability and performance gap between companies that invest and those that are slow to embrace change, a gap that is likely to widen during a downturn.
A multinational pharmaceutical company working in 100 countries faced significant hurdles to growth as it relied on more than 20 unique systems and 40 sub-processes to manage purchases and payments. Silos have led to major inefficiencies and significantly impeded business success. Management needed global visibility and better spend control while remaining compliant with local regulations.
By embracing digital business spend management for its traditional back-office operations, the pharma giant has gained visibility and control over more than $10 billion in global spend, improved compliance and expanded user adoption . Its commitment to a smart, agile and highly collaborative digital organization enables the organization to focus more on revolutionizing healthcare and science to improve people’s lives.
Invest in your business, don’t just cut jobs and costs
Transformations like these show that cutting jobs and cutting costs alone will not be enough to position a company to handle a recession; invest in the business will. Embrace discipline. Use digital tools and analytics to take control and make smarter decisions. Build flexibility and intelligence into planning and operations.
Every recession has different catalysts, but every recession has one thing in common: it ends. And when the economy shifts to the other side, companies that have used the time to become more agile and resilient will find themselves in a better position to accelerate than the competition.
In a recession, don’t cut and hope. Invest and grow.
The best companies fuel financial success with smart choices, precise spending controls, and smart investments. Find out how to stay profitable today so you can help your business grow tomorrow at coupa.com.
Rob Bernshteyn is President and CEO of Coupa and has over two decades of experience in the enterprise software industry.