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Why Smart IT Investment Leads the Way to Post-Recession Growth

Sophie Lelarge
Sophie Lelarge
Chief Revenue Officer

It was the Zoom heard around the world, and suddenly a much-beloved video conference provider became core infrastructure, vital as power and water, for business and government, students, families, well, everyone.

No one was more surprised than the leadership team at Zoom, which was caught off guard as the sudden bonanza in product adoption exposed security and scaling flaws and zoombombed the company to a few gnarly headlines.

Nevertheless, several urgent software patches later, eyes popped again in early June when Zoom’s spectacular quarter was disclosed — TechCrunch reported annual growth of 169%, the company notching an enviable $328.2M Q1 revenue.

IT investments - Digitalization

We’re going Zoom, Zoom, Zoom, and that’s the way it is.

And so will be the story, if less dramatic, for many web platforms and digital services riding the tiger of rapid tech innovation that leads out of the crisis into growth — from telemedicine to entertainment to home delivery services of all stripes.

From recovery will emerge a new normal that will generate broad demand for a variety of digital services. These select businesses, and the handful of others that make smart IT investments now, will capitalize on the chaos to grow into leaders.

From big players such as Alphabet and Amazon which are leveraging scale to myriad startups with dozens of emerging value propositions, the areas of innovation are abundant and diverse across sectors.

The World Economic Forum identifies 10 key tech trends, led by e-commerce, payments, collaboration and education slated for rapid expansion as the world adapts to pandemic readiness.

“During the COVID-19 pandemic, technologies are playing a crucial role in keeping our society functional in a time of lockdowns and quarantines.” the Forum observes. “And these technologies may have a long-lasting impact beyond COVID-19.”

As McKinsey argues in a recent white paper, “[t]he disruptions of the coronavirus have underscored the crucial role of technology, from supporting remote working to scaling digital channels for surging customers.”

Recessions, to be plain, are economic winnowers: most companies either fall or stagnate. Yet a narrow slice of companies — a bare 9% of all businesses, several research teams have shown — unlock their potential and come out stronger.

You Gotta Be Ready to Be Ready

How do you win during the decimation of growth?

By making a deft balance of cost-savings and strategic investment, winners give themselves “the greatest likelihood” of tuning business strategies for emerging demand signals and out-performing rivals, argue the authors of Roaring Out of Recession.

These companies are able to “mak[e] significantly greater investments than their rivals do in R&D and marketing,” the authors observe, and are more prepared for the aftermath. The companies take the slowdown as a chance to re-tool for anticipated customer orders.

Revising the question of recession survival one prescient year ago, the journalist Walker Frick explained that [t]he difference maker was preparation,” that in order to make the right decisions “a company needs to be flexible and ready to adjust.”

Frick’s HBR review is riveting reading in the current context, with broad insight into business strategy (including lengthy discussions of capital management and staffing). Here I highlight his insight into two synchronistic drivers of adaptation: agility and digitalization.

Agility, the ability to align authority and expertise, is critical in this telling because it overcomes the disruption of planning cycles and centralized hierarchies, rigid and slow on good days, threatened with extinction by crisis.

As Frick looked at the aftermath of past recessions, he found that “decentralized firms delegated decision making further down the hierarchy,” and as a consequence, “were better able to adapt to changing conditions.”

At Pentalog, we see signs of task devolution, as platform and SaaS clients ask for greater assistance from some of our most highly specialized profiles, security, DevOps and architecture, among others. Our team members are helping clients navigate change.

Digitalization is a second key trend highlighted by Frick. Smart firms, provocative asserts, not only make investments (which we also see with certain clients), but they use the slowdown as an opportunity to lower the relative costs of innovation.

As Frick explains, and I quote him at length:

“[C]ompanies invest in technology during a recession…because their opportunity cost is lower than it would be in good times. When the economy is in great shape, a company has every incentive to produce as much as it can; if it diverts resources to invest in new technologies, it may be leaving money on the table. But when fewer people are willing to buy what you’re selling, operations need not be kept humming at maximum capacity, which frees up operating budget to fund IT initiatives without dampening sales.”

“For that reason,” he concludes, “ adopting technology costs less, in a sense, during a recession.”

For business leaders looking for a crystal ball, the crisis of the coming recession should not be put to waste.

Bringing it All Back Home

A dual focus on agility and tech investment is self-reinforcing because the two priorities complement each other. Agility makes better tech while practice making tech can improve team agility.

To put it another way, engaging in agile development becomes a virtuous circle, and done right, it can enable a transformational win-win to leap from lean times to recovery.

As Frick says, “IT investments make companies more agile and therefore better able to handle the uncertainty and rapid change that come with a recession.” This elusive combination of mentality and selective investment puts companies in a position to use negative market forces to their advantage, to prepare today to outrun competitors tomorrow.

While many will fail, as Silicon Valley visionary John Chambers recently said, “Almost all the great high-tech companies in each generation — companies like Cisco, Salesforce, Oracle, Microsoft, Google — were the ones that broke away during an economic crisis.”

At Pentalog, we’ve understood agility and digitalization as key business principles for more than a decade. We drew on this experience to pivot our operations to full work from home mode, upgrading our tooling and work processes in real time and at the same time.

With productivity and client satisfaction levels equal to or better than the pre-pandemic period, Pentalog welcomes entrepreneurs, intrapreneurs and innovators everywhere to leverage our full platform capabilities in development, innovation and growth.

Pentalog is committed to helping clients master the recovery. While the future may be uncertain, as McKinsey reminds us, “it’s clear already that it will be digital.”


Further reading:

Covid-19: What are the right management tactics? What are other companies doing?

Agile Transformation: Create Happy Teams and Grow a Healthy Business

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