Anticipating Recession

The positive side of an economic slowdown is that it can encourage companies to embrace e-business as a means of cutting costs,...

The positive side of an economic slowdown is that it can encourage companies to embrace e-business as a means of cutting costs, argues Martin Butler

It's hard to change people's opinions and ideas when things are going well. So it is a measure of the impact of e-business that it got so much attention in boardrooms around the world during a period of economic boom. Most commentators seem to agree that we are entering a period of economic recession, the degree of which is up for debate. What is not in question is the fact that life will get harder over the next few years. Profit margins will be squeezed, revenues will be challenged and business managers will be looking for ways to reduce costs. Ironically, this is exactly the economic climate that is required to accelerate the deployment of e-business systems; particularly business-to-business systems.

The e-business activity we witnessed over the last three years was not much more than an expression of excess. Investors had a surplus of funds, and it seemed that any half-baked idea could attract funding (especially if daddy was connected). This was true of many dotcoms, although some B2B initiatives were also flawed. Today, we are witnessing the shakeout from this excess and in its place is a more realistic expectation of what e-business can deliver.

Dominant Role
In a recessionary economic climate the dominant role of e-business will be in cost reduction. The prime candidates for this treatment are purchasing and collaboration, although sales force and supply chain automation will also be candidates for many businesses. The effect of the recession will be to accelerate the rate at which businesses implement cost-saving e-business systems.

The savings from online procurement are well established, with figures of 10% or 15% commonly quoted. Businesses will also be looking to reduce headcount, and the purchasing department will be a natural candidate for streamlining if automation through online procurement is successful.

B2B collaboration is a more complex area, although savings can be significant. The aerospace industry is leading the way, automating complex collaborative processes that are part of the process of designing, building, financing and maintaining airplanes. In fact, the after-care market in the aerospace industry is a prime example of how large cost savings can be made by the use of collaborative technologies. In fact, collaboration in the after-care market across many industry sectors will be seen as one of the key e-business target areas.

The technology vendors will not be slow to recognise this change of emphasis, modifying their marketing messages to comply with the new mood. Indeed Oracle is already promoting its e-business applications as being a mechanism for cost reduction, although they never were ones to miss a trick. More generally we will see a shift away from large monolithic applications to much less expensive point solutions that address very specific needs. Those hugely expensive enterprise resource planning and customer relationship management applications will become a thing of the past, as companies look for more immediate returns on lower levels of investment. This will mean a redefinition by the vendors of best-of-breed as opposed to single systems, with traditional vendors in the latter space having to compete at the point solution level, without the luxury of being able to trade on the supposed benefits of having a 'complete' solution.

Businesses are not the only ones to be affected by a recession; consumers find life more difficult too, and business-to-consumer companies that can offer lower prices on commodity goods should see an increase in interest from consumers. The 'best deal' finders such as shopsmart.com should benefit quite considerably from a harsher economic environment, as consumers decide that saving 20% or more on an item is worth the effort. If participants in the B2C space follow through this opportunity, we could see an upturn in interest in the Internet channel with a reversion to cost savings for the consumer being the primary driver, as it was with the early and partly successful business models.

Prepare to Barter
It is possible that a severe recession will see more bizarre behaviours. During the last recession local 'currencies' evolved. In Liverpool, this took the form of cotton bobbins and barter. The Internet would clearly lend itself to this form of trading, and in a deeper recession we should expect to see self-contained trading communities emerge that are outside the general economic environment. In extreme circumstances we might also see such markets emerge that are industry specific, with businesses bartering rather than exchanging cash.

The next four to five years will take us from e-business being the domain of well-connected rich kids, to being a trading environment for people and businesses that are seriously interested in saving money. The developing recessionary climate will be seen as the best friend that e-business ever had, just as other recessions in the past have forced a change in attitude and a move away from complacency towards innovation and new ways of looking at business.

  • www.butlergroup.co.uk

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