Smarter Recession Reinvestments: 3 Ways To Invest In Future Growth
Omar Choucair, CFO, Trintech, has spent 20+ years leading financial and administrative organizations for public and private companies.
In a continued inflationary environment, with additional interest rate hikes expected and many signs pointing to a looming recession on the horizon, profit margins are likely to trail the original forecasts made at the beginning of 2022.
Tech companies have been hardest hit by rising interest rates and economic volatility. These “growth stocks” including Microsoft MSFT0.0%, Amazon AMZN+1.4%, Apple AAPL-0.3%, Tesla TSLA-1.1%, and Google GOOG+0.2% have all lost “at least 20% of their market value since the beginning of the year.” Furthermore, the second half of 2022 guidance will be critical as management teams tighten spending patterns to offset the impact of inflation, rising interest rates and global supply chain constraints.
As management teams regroup and forecast the second half of 2022, they are likely to lower expectations or make more aggressive budgetary adjustments in order to maintain expected earnings for Q3 and Q4. Adjustments and trade-offs will need to be made, but how does the C-suite decide what’s best to table for now, and what should remain a priority for the remainder of the year? In other words: What should you do when you see things getting crunched?
In the past, management teams may have looked to cut back on technology advancements and digital transformation strategies in moments of economic downturn, but this seems unlikely this time around, as CFOs have been forced to invest in technology platforms to work through the pandemic challenges and shortage of talent.
GartnerIT -3.3% showed that 78% “of CFOs plan to maintain or increase enterprise-wide digital investments in the next two years.” With new regulatory trends putting an additional strain on finances, as well as continued talent acquisition and retention stressors, digital transformation will firmly remain a top priority to drive long-term business growth, especially as operational costs continue to surge.
Here are three business critical arguments that make the case for CFOs to prioritize their digital transformation strategy and invest in future growth.
Fill The Gap In Reduced Team Sizes And Optimize Talent
Even as we face a potential recession, businesses continue to struggle with talent acquisition and retention efforts. In the recently released 2022 Trintech Benchmark Report, our survey found that reduced team sizes remain one of the top challenges faced by businesses today.
Investing in automation is a cost-efficient way to bridge the gap in reduced team size. Recent research conducted by Deloitte indicates that organizations that utilize automation in a successful “human-machine collaboration” have seen fewer signs of operational inefficiencies and “could ultimately boost organizational collaboration, free up time for strategic thinking and drive greater employee engagement.”
For finance and accounting teams—those at the center of budgetary decisions and economic forecasting—automating routine financial reporting processes can eliminate the risk of human error, while also freeing up more time for the team to focus on value-additive work that drives business growth.
Streamline New Compliance Processes
Despite pushback from several state attorneys on behalf of corporate entities, the SEC has also recently proposed new stringent reporting requirements that are expected to help standardize clearer ESG disclosures across the industry. With the goal of urging the finance sector to increase accountability and awareness around ESG efforts, these new complex and rigorous compliance regulations are anticipated to place a significant additional operational burden on finance and accounting teams. As a result, according to an Accenture survey, 9 out of 10 compliance executives forecast a 30% surge in compliance costs over the next two years, despite minimal increases in operational funding.
As CFOs and their teams consider how to tackle these new compliance challenges, many are looking toward AI and automation solutions to support the successful integration of these new processes. In the same Accenture survey, 93% of respondents said that “advanced technologies such as artificial intelligence and cloud computing will streamline compliance, yet 37% said their companies invest too little in technology and 72% said their technology budget did not change during the past 12 months.”
Investing in the right technology to help streamline these workflows can remove the operational burden from finance and accounting teams, and help save on compliance costs in the long term.
Stay Competitive In The Long Term And Improve Profitability
Every cloud has a silver lining, and while a possible recession would significantly impact most business verticals, there are many opportunities for businesses to strengthen their operational processes while demand decreases.
One such area could be to simplify a complex enterprise resource planning (ERP) environment with more integrated solutions. In a 2020 joint study between Trintech and Forrester, we found that most organizations use an average of nine different vendors and 18 instances across the enterprise globally. Technology can provide a supplemental solution that integrates across these complex ERP environments to improve data accuracy and collaboration in the C-suite—an integration that can be valuable in times of economic volatility.
It’s important to remain focused on long-term growth objectives, and digital transformation strategies are a core facet of business growth. I believe Katy George, a senior partner at McKinsey, summarized it best with these three key reasons to prioritize digital transformation strategies during a recession: to better help management understand the business and more clearly identify pain points and areas for improvements, to help cut costs by “automating tasks or adopting data-driven decision making” and to invest in making your business more agile and able to adapt more quickly to change.
Market downturns are usually always followed by periods of strong growth and rebounding economic metrics—and in the meantime, operations must continue to prioritize efficiency, despite the recent challenges of reduced team size and new regulatory processes to adopt. By focusing on transformation growth during this period of economic uncertainty, businesses can effectively cut costs, streamline operational processes and set themselves up for long-term success when the economy starts to turn around.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.