Economic downturns are a time of great uncertainty for businesses, as they face a wide range of challenges such as decreased consumer spending, reduced demand for products and services, and shrinking profit margins. However, contrary to popular belief, investing during a recession can actually be a smart move for companies, as it can help them weather the storm and come out stronger in the long run.
Here are some of the key reasons why companies that invest during economic downturns are more likely to succeed:
- Increased market share: During a recession, weaker companies are often forced to close their doors, creating opportunities for stronger businesses to capture a larger share of the market. By investing in growth strategies, businesses can position themselves to take advantage of this shift in the competitive landscape.
- Lower costs: Economic downturns often result in lower prices for goods and services, as suppliers are forced to lower their prices in order to stay competitive. This can be advantageous for companies that have the resources to take advantage of these lower costs.
- Increased innovation: When times are tough, companies are often forced to get creative in order to survive and “do more with less” This can lead to increased innovation as businesses look for new ways to streamline their operations, cut costs, and differentiate themselves from the competition. Investing in innovation during a recession puts them in a better position to meet the changing needs of their customers.
- Long-term thinking: Finally, companies that invest during economic downturns tend to take a longer-term view of their business. Rather than focusing solely on short-term profits, these businesses are more likely to invest in projects that may not pay off immediately, but rather prepare them for success in the years to come.
However, some companies are hesitant to invest in automation during an economic downturn, fearing that the upfront costs may be too high. But a study by the University of Manchester suggests that short-term pain may be worth the long-term gain. The research shows that companies that invested in automation during the 2008-2009 recession had a higher rate of profitability five years later than those that did not 1
Thinking about championing a strategic technology investment but you’re told there’s no budget?
Recent studies have shown that employees who push to add budget for technological automation investments during a downturn are less likely to be laid off, as they demonstrate a commitment to the long-term success of the company. According to a survey conducted by Harvard Business Review, employees who advocate for investment in their companies are perceived as more valuable by their employers because they are seen as strategic thinkers who understand the long-term needs of the business and are willing to invest time and resources to ensure its success.
So if you’re too afraid to ask for funding for a project, consider that it might just be the thing that keeps you employed in a sea of layoffs!
- Title: Investment in automation: Long-term evidence of resilience to economic cycles Authors: Ian R. Gregory-Smith, Sarmistha Pal and Suman Ghosh Journal: Technological Forecasting and Social Change Volume: 142 Pages: 335-347 Year: 2019 DOI: https://doi.org/10.1016/j.techfore.2018.12.022
- Title: Why capital spending may be more important in a downturn Authors: Tim Koller, Dan Lovallo, and Tom Puthiyamadam Publication: McKinsey & Company Year: 2020 Link to the study: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/why-capital-spending-may-be-more-important-in-a-downturn