More and more experts are warning that the U.S may be heading for another recession. While there may be signs suggesting that the economy is on solid grounds, the consensus on the U.S barreling towards a recession seems to be increasing every passing day. Experts from financial think tanks like Moody's, Goldman Sachs, Barclays, Wells Fargo, to name a few, believe that recession risks for the U.S economy are "very high". In this article, however, we are not focusing on the indicators of recession but instead on how executives can leverage the competitive advantage levers of analytics and automation to manage their companies through this and future recessions.

Typical Approaches to Managing a Recession Are No Longer As Effective

The bottom line remains a key focus area in recession. And hence, to preserve the bottom line during a recession, executives generally focus on the two key components that impact the bottom line: Revenues and costs. Revenue preservation. The focus for many companies is to at least preserve their revenue and customer base. A decade or two ago, executives would focus on preserving customer loyalty during phases of recessions. This approach is becoming increasingly challenging to execute now. As barriers to entry are getting lower across industries, new and more nimble players are entering in droves, fragmenting the market share landscape. Customers today have more options than ever. Preserving revenue base is hence becoming a challenge even in normal times. During the recession, the challenge increases manyfold in magnitude. Companies can't rely on brand loyalty for revenue preservation anymore. Cost reduction. Similar to revenue preservation, cost reduction levers are not as effective as they used to be. Companies these days, pursued by aggressive shareholders and stakeholders, already run extremely lean. In fact, this nature of being extremely lean is what landed many companies into the supply chain and inventory issues during the pandemic. Hence, traditional levers are becoming more and more ineffective. Supply chains already run lean, inventories are held at minimal levels, and headcounts are "just right", plus reviewed regularly. The typical levers that executives had to manage costs during a recession are getting eliminated fast.

How Analytics and Automation Can Rewrite The Playbook of Managing Recessions

The fact is, while the focus of executives still needs to be on the two broad buckets of revenue and cost indicated above, the levers need to evolve. And this is where the power of analytics and automation comes into play. In fact, analytics and automation can create new levers and help extract more value from levers like customer loyalty, which are increasingly becoming ineffective when used in traditional ways. Therefore, it is not surprising that analytics and automation are key investment areas identified by CIOs in our CIO agenda research report.  Let us review how analytics and automation can help executives better manage revenue and cost buckets during a recession. Revenue Analytics and automation can help create new revenue channels that executives can leverage to ensure that total revenue does not take a hit. Analytics can play a huge role to identify attributes that customers desire or need. Customer needs may take a specific direction in times like an economic recession. Identifying that need from historical data leveraging analytics, and customizing products and services that address those needs can help ensure that revenue is not impacted. In addition to evolving existing products and services, analytics, coupled with AI and emerging technologies like blockchain and digital, can help introduce new products and services that can help prevent a decline in total revenue. Even in areas of existing levers like preserving customer loyalty, analytics and automation can play a key role. You can leverage ML-based analytics to identify product attributes that impact customer loyalty more precisely and hence improve customer loyalty using a recessionary phase. ML-based analytics can also help you explore new customer segments and hence new markets for your existing products and services. Leveraging a combination of analytics and automation, you can empower your employees with easy-to-use tools so that they can focus more on innovative and creative work, which in turn impacts the customer experience. As Stephen Koeing, product manager at SAP highlighted during a recent conversation: "There is a big focus on no-code/low-code solutions so that employees who are not very technical get empowered with advanced tools. This helps provide better customer experience." Costs This is where analytics and automation can make a significant impact. We can review the impact in the framework of two buckets: People and processes. Technology, the third key bucket, serves as an enabler in these two.

People

A knee-jerk reaction during most recessions has always been layoffs. With companies trying to be as nimble as possible even during normal times, this is becoming less of a lever these days. Additionally, mass layoffs during recessions, without regard to mid and short-term strategy and corresponding skill requirements can be extremely detrimental for companies in this era. Here are examples of a few ways analytics and automation can help manage the people aspect better in a recession:

• Identify optimal manpower through HR analytics: Bringing advanced analytics into your analysis, you can identify your optimal manpower requirement, beyond vanilla headcount. You can design a very specific manpower strategy, based on aspects like business drivers, corporate strategy, skill set requirements etc.
• Remove manual aspects through automation. While RPA solutions can help eliminate manual touchpoints, intelligent automation can help reduce human intervention for basic decision-making. Both of these can help reduce headcount in a more structured and scientific way.
• Hire the right kind of skillset. The fact is, during the recession, you should actually indulge in some hiring in strategic areas. While the initial key step is to identify the skill sets you need to hire, AI-enabled solutions these days allow organizations to manage the hiring and onboarding by leveraging AI and ML algorithms, that ensure the right skill sets are being hired for in the right way. As Nikolaj Genge, director of product marketing at SAP states:"HR is an area where there is increased focus from automation and intelligent automation perspective." This aligns with "Hire to Retire" emerging in the top focus areas for automation in our 2022 process automation benchmark research.
• Empower employees to innovate. Contrary to general perception, a recession can be a great time to focus on innovation. While most of your industry peers may be focused on surviving, if you can continue innovating, you emerge from the recession with a competitive advantage that will be very difficult to catch up with. Empowering your employees with easy-to-use analytics and automation tools can help them focus on innovation and enhancing customer experience, as indicated earlier.

Processes

Processes can play a key role during automation. While one aspect falls within the revenue side of improving customer experience, the cost aspects are abundant as well. A key area is process re-engineering and optimization. By leveraging analytics and process intelligence, you can streamline and optimize your process to make them more cost-effective. This applies to service-oriented processes, like order to cash, and processes pertaining to physical movement and creation of goods, like logistics and manufacturing. As traditional levers dry up in reducing supply chain costs, analytics, and intelligent automation, paired with emerging technologies, can help reduce costs, while transforming your supply chains. As a result, you emerge from a recession unscathed and transformed.

What Does This Mean For SAPinsiders?

A recession may be on the horizon and SAPinsiders need to start preparing for it. As highlighted in the article, analytics and automation can be powerful tools to help manage recession better. However, there are a few key aspects SAPinsiders need to be aware of when they embark on this journey.

• Evaluate your mid and long-term strategy. Companies that are successful in the digital era are those that do not lose sight of the horizon. Your mid-term and long-term strategies are critical to propelling you for long-term success. While a recession may force you to course correct in the short-term, it is critical to not lose sight of your mid and long-term strategy. This is important from the perspective of leveraging the levers of analytics and automation as well, as described above.
• Understand your digital portfolio. Now may be the right time to understand if you have the tools, whether in analytics and automation or other areas, that can help manage recession better. Such tools, in general, will not only help manage a recession better but will also be powerful weapons during normal times.
• Think about recession as an "opportunity in crisis". If you have the privilege, invest in digital transformation and innovation during the recession. This helps you get a competitive advantage. A recession may expose gaps in your strategy and operations. If rather than put a band-aid on these gaps, you invest to build permanent capabilities to address them during a recession, chances are, you will emerge with really strong foundations during a recession.