Recession can have a negative or positive impact on businesses. However, preparing your business to overcome a recession could be an ideal solution to ensure that you do not experience a worrying downturn during an economic collapse. In this article, we will share some tips to help you better prepare your business.
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With inflation on the rise and the Bank of Canada increasing interest rates to fight it, more than 80% of Canadians are worried that a recession may come around before the end of the year. Moreover —according to Oxford Economics— Canada is expected to enter a recession in Q4 2022. Keeping this in mind, businesses should ideally prepare themselves to thrive through the upcoming period. Gartner recommends that investing in the right technology or digital initiatives can help reduce the negative effects of economic pressures in the short term and establish long-term competitive advantage.
For example, technology tools such as risk management software, artificial intelligence/machine learning (AI/ML) software, or cloud migration platforms could potentially help your business reduce labour costs, increase production, and free up scarce, high-cost talent to focus on core business operations.
Definitions of common tech terms:
What are artificial intelligence software?
Artificial intelligence software can mimic human intelligence by gathering and learning various data patterns and insights. Some examples of AI may include social data analysis to find emerging consumer trends, healthcare record analytics to identify patterns and outcomes, and financial data insights to predict and assess loan risks.
What are machine learning software?
Machine learning software can gather insights from data and build logical models based on those insights. Examples of machine learning can be photo tagging on social media using image recognition and voice search on Google Home or Amazon Alexa.
What are cloud migration platforms?
A cloud migration platform can be defined as a technology enabler that can assist businesses on their journey from physical data centers to the cloud.
What is a data center?
A data center can be defined as a physical facility that can house centralized computing infrastructure —typically storage, network equipment, and servers.
This article will discuss the downturns your business could face because of a potential recession and how technology can help.
What is a recession?
Investopedia defines it as: “A recession is a significant, widespread, and prolonged downturn in economic activity. A popular rule of thumb is that two consecutive quarters of decline in gross domestic product (GDP) constitute a recession. Recessions typically produce declines in economic output, consumer demand, and employment.”
During a recession, businesses are most likely to reduce hiring, lay off employees, and cut down on working hours. If a recession happens, it may not only affect businesses but workers as well. It could, therefore, be crucial for you as a business to prepare for a recession. But let’s first understand how a recession can impact businesses.
What could be the impact of a recession on your business?
A recession event may affect both small businesses and large-scale companies. Below, we have listed some examples of how a recession can affect your business.
As economic growth halts, businesses and consumers may become more cautious when it comes to spending. In such a scenario, your business may find it difficult to generate its usual sales and you might have to reduce costs accordingly.
Decline in product quality
A drop in quality could be one of the knock-on effects of a recession. As bills go unpaid or delayed and manufacturing slows down, businesses may look at new ways to reduce costs and improve the bottom line. This could lead to a temporary reduction in product or service quality when a company cannot afford to adhere to its typical standards.
It’s not only consumers and businesses who may become wary of spending. Lenders could also tighten their belts, which could make it difficult for businesses to access usual credit lines. In addition, banks might further increase interest rates and lending requirements could also get stricter.
Reduced cash flow
It could be difficult for businesses and customers to make timely payments during a recession event. Businesses might have to spend more time chasing invoices, which may result in late payments to suppliers.
How can technology help businesses prepare for a recession?
Here are some of the ways technology can benefit your business during an economic downturn.
Can improve internal efficiency
Instead of cutting down on staff or services, you can work on improving internal processes by getting answers to the questions mentioned below:
- How can you provide better services to your customers with customer self-service options?
- What are some issues you have been dealing with in sales and operations and how can you manage those?
- How can you identify and improve inefficiencies in your business?
You may leverage the potential of chatbots or eCommerce platforms to serve your customers more efficiently. Having customer relationship management (CRM) software in place to manage your sales and operations pipelines can also help you keep track of past, existing, and future customers. Furthermore, embracing a data-driven approach could help you gain insights for better decision-making, improved processes, and ideally greater success.
Can help minimize disruption
Old and inefficient technology can expose your organization to the risk of losing relevant information because of storing your data in a single, centralized, and physical database. As a result, it may not perform the way you expect during a significant disruption when you need to review your data the most. If your enterprise resource planning (ERP) system is on-premise, unexpected events could easily disrupt your operations. For instance, in case you have to upgrade your on-premise ERP platform, you will have to carry this out on-site, which may add up-front costs you hadn’t planned for initially.
On the other side, migrating your data and processes to the cloud may enable you to access data easily from anywhere and anytime. Unlike a centralized database, your data is not typically stored at a single physical location. As a result, you may drive more targeted interactions, access updated data and apps 24/7, and analyze data in real time.
Can boost sales and productivity
Ideally, you may want to take some time to think about the challenges you face in terms of sales and provide your team with technology-based solutions designed to boost sales.
For example, you can invest in productivity apps, ERP software, or cloud-based CRM solutions to keep your sales team engaged in sales-related activities. Using automated tools could also help your sales team work efficiently by keeping track of all their sales information in one place.
Could help manage risks
Using risk management strategies, companies can manage or prevent critical risks, including financial, legal, regulatory compliance, and operational risks. From analyzing risks to assessing, monitoring, and documenting them on a regular basis using risk management software, you can ideally build a proactive, risk-aware culture and stay prepared for any future risks during a recession. For example, if a manufacturing firm has to launch a new product, they can perform a thorough risk assessment to determine the degree of risk that they might face before they begin manufacturing.
Therefore, keeping track of the risks associated with the kind of business you are running could help you prevent challenges you may encounter during a potential economic collapse.
Next steps that businesses can take during or after a recession
If you have not adopted newer technologies —whether it’s eCommerce platforms, CRM systems, or ERP systems— it can be beneficial for you to consider implementing some of these tools. Technology can help make your business more efficient and transparent. Automated analytics offered by tech tools can help your management team better understand how the recession has affected your business and how can you make operational improvements.
Recessions may create long-standing performance gaps between companies. However, preparing your business for a recession by investing in digital technology trends, agile business practices, and analytics could help you better gauge the threat you face and respond more quickly.