Victor Not Victim

February 12, 2009 by admin

For Professor Erik Brynjolfsson it is indisputable that times of chaos and turbulence are unsettling to the global economy. But they are also – seemingly paradoxically – one of the best times to invest in order to gain market share. “If you have the right kinds of investments that improve your understanding of the market and increase your efficiency,” he says, “you can take advantage of these turbulent times to come out ahead the next couple of years.”

This is a realization that companies must bear in mind, particularly when faced with decreasing customers and falling stock values. In times such as the current economic crisis, the temptation is great for businesses to implement cost-saving measures and cut, for example, IT spending across the board. “But that’s likely to be damaging to the long-term prospects of the company,” warns Brynjolfsson.

IT investment must continue, albeit with the proper awareness to the individual economic exigencies of the company. “Certainly, if your markets are shrinking,” he explains, “it’s not a good time to be adding capacity and making IT investments that increase the output of the firm.”

How should companies then invest in their IT during this period of economic downturn? In Brynjolfsson’s eyes, businesses should focus on two kinds of IT investments:

  • investments that improve efficiency and save costs, allowing companies to do more with less
  • investments that improve the agility and the flexibility of companies, enabling them to be more responsive

Investing in information technology in these ways can boost efficiency and be very cost effective. In general, it is striking how IT proves its worth to business during economic and financial crises. “IT can help firms understand better what their customers need and how other suppliers are responding,” says Brynjolfsson. “That greater information about market conditions improves agility and allows the companies to operate more effectively.”

Needless to say, in a tightening market and a cash-strapped economy, it is the agile and efficient businesses that survive, stay competitive, and succeed. And maintaining that competitive edge through wise IT investments is indispensable, stresses Brynjolfsson, particularly because “our research predicts that the turbulence we’re seeing today is only going to increase in the coming years.”

Erik Brynjolfsson is the Director of the MIT Center for Digital Business, the Schussel Professor at the MIT Sloan School and a Director of public and private companies. More information: ebusiness.mit.edu

In economic downturns such as we are experiencing today, the primary goal seems to be survival. And thus the primary objectives of CFOs are more often than not radically cutting costs back. But this stance, according to Yuwa Hedrick-Wong, is simply not good enough. While short-term survival modes are totally understandable, he says, they also dent the investment required for long-term success.

Hedrick-Wong’s reasoning is that foresight, a strong business strategy, and the conviction to make necessary investments are ultimately what count. If a business wants to turn survival into longer-term success, he argues, it must invest in IT, despite the chilly economic climate. “That’s part of preparing for the future,” he says. “I know it’s not an easy task. And while CFOs have to cut back on expenditure, they must not confuse that with cutting back on investment.”

Indeed, Hedrick-Wong sees a strategic investment in information technology as critical to the health of a company because it allows businesses to connect with one another and to connect to the core market. Above all, it is these connections that enable new ideas to develop and innovation to take place.

In Hedrick-Wong’s estimation, business must not lose sight of total factor productivity in difficult economic times. “In principle, you can have continuous growth in total factor productivity without any increase in the number of workers you have, or any increase in the capital asset that you have at your disposal,” he says.

That is an exciting concept for cash-strapped businesses. “It’s really very simple: you just have to know how to combine workers with their tools in ever more creative, innovative ways that add new value to the production process,” he continues. In effect, innovation becomes a new and powerful currency.

Yuwa Hedrick-Wong is an Economic Advisor to MasterCard International Worldwide and chairs its Asia Knowledge Panel. He is also Chief Economist for South Pacific Capital and an advisor to Global Demographics. More information: www.insightbureau.com

Here, again, IT plays a key role. “The appropriate use of IT improves the potential for total factor productivity growth,” says Hedrick-Wong. For example: the new positions that a CEO planned for expansion in 2009 cannot be filled due to the looming specter of a global economic meltdown. But the target of expansion still has to be met. “This is the conundrum that most regional CEOs are faced with in Asia today,” he continues. “The only thing businesses can do in a situation like that is to get more out of unchanged assets, whether they be labor or capital.”

So how exactly should businesses think of using IT? “By getting more, much more out of every single one of their workers,” stresses Hedrick-Wong. “That’s the beauty of IT.” If you can’t fill new positions, then at least make sure that the existing staff are tightly connected to each other – that makes for an agile company. “Connectivity? That’s IT,” he concludes. “And creative connectivity is the key to how a business can succeed in today’s gloomy economic environment.”

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