Posted by Marbenz Antonio on September 19, 2022
Many senior executives are prepared for an economic slump with margin compression rates that have not been witnessed in more than 40 years as inflation dominates public discourse. According to Barron, the industrial sector’s profit margin is declining, with CAT predicted to drop to 13.4% from 15.3% and Deere & Co. to 20.9% from 22.2%. The OECD’s annual inflation rate increased to 10.3% in June 2022, the highest rate since August 1988.
This anticipated downturn is being driven by interruptions in the supply chain caused by inflation, geopolitical unrest, and increased government spending. As inflation and declining demand combine, margin compressions will probably occur more quickly than during any previous downturn. In anticipation of this scenario, many executives are making cost reductions to help maintain their margins.
However, during the 2008 economic downturn, the most prosperous businesses were those that were able to maintain (and even accelerate) expansion. Businesses that recovered effectively from previous recessions made investments in cost restructuring and growth, but companies that failed or barely made it through the lost sight of growth and solely paid attention to cost-cutting. When businesses make wise and strategic decisions, they may encourage growth even during difficult economic times.
Advanced technology, data, and AI will play a significantly bigger role in fostering progress in today’s digital environment. The percentage of e-commerce retail sales increased from 3% to 14% from 2008 to the present, and the total amount spent on IT worldwide increased from $3.4T to $4.5T. Increasingly, businesses from all sectors, including manufacturing, retail, and financial services, identify more as digital companies than as businesses in their industry.
Businesses can use technology to promote quick and sustainable corporate growth even in times of stagflation. This can be done by carefully balancing cost reduction and expansion using techniques like:
Pricing/bundling optimization: Businesses can modify packages and pricing to increase their share of wallets by having a more detailed understanding of consumer preferences, purchasing patterns, and segmentation.
Cognitive care: Businesses can gain a real-time understanding of consumer sentiment and quickly modify customer service to fit the needs of the customer by utilizing AI and customer 360 analytics. Better customer satisfaction decreased churn rates, and upselling opportunities may result from this.
Digital channel expansion: Businesses can reach a wider audience by increasing the channels via which they sell their products and services. Businesses should increase their social media presence and target it toward particular demographic groups. They ought to strengthen their presence in the expanding metaverse as well.
Intelligent customer experience: Enterprises may improve customer experiences and upsell services by utilizing technology like IoT, sensors, and real-time data.
Ecosystem plays: Numbers have influence. Enterprises can diversify their revenue streams by creating or taking part in an ecosystem of customer products and services (like rewards programs). When paired with other tech-enabled growth strategies like intelligent customer experience, this becomes more potent.
Data monetization: Enterprises can bundle data and use it in supplementary services because of this mostly unexplored opportunity. This information may be obtained naturally while conducting business or it may be created by the company’s goods and services. Automakers, for instance, can use telemetry data to increase “lock-in” with intelligent fleet management systems, services, diagnostics, prognoses, and analytics, thereby increasing the surface area of their sales force and boosting market share.
It can be difficult to put these tech-enabled solutions into practice. Enterprises usually struggle to identify their opportunities and implementing new technology frequently necessitates a complex web of integrations to scale its effects. It can take a while to find the personnel needed to carry out these efforts, and legacy stakeholders sometimes see these programs as fads and don’t take initiative. Furthermore, the price of technology initiatives might be significant, particularly in the current climate of narrow margins.
With successful implementation experience across various sectors, IBM has technology and strategy expertise in more than 170 countries. With the support of our 12 research laboratories, 52 innovation centers, 57 studios, and partnership with more than 100 ecosystem companies, businesses can recover more quickly from a recession with the help of these resources. In the upcoming years, technology, data, and analytics will make sustainable growth possible.
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