Accelerating your Survival Strategy

Can we learn anything from the 2008 Financial Crisis? 

It is not entirely accurate to compare all of the economic impacts of the 2008 financial crisis to the current pandemic, but there are certainly lessons for companies looking to survive what is the most significant downturn since the Second World War. Following the financial crisis academics talked a lot about the importance of innovation even when budgets and markets contract dramatically, but this time around survival is even more pressing than innovation. With many companies in industries such as retail and travel almost entirely losing their customer bases overnight, companies have to find ways to manage their cashflows to stay afloat. 

We face a form of ‘Corporate Darwinism.’ It is not the big that will eat the small it is the fast that will eat the slow. This has some similarities to the previous crisis as a number of agile digital start-ups emerged to compete with the established players. They were unburdened by legacy infrastructure and traditional business models. It did not mean that all established businesses failed, but it forced them to focus on digital transformation and build robust digital business plans. Not everyone responded rapidly as corporate inertia slowed down their reactions and it is easy to ask: “Where are they now?” 

Therefore, the key question for businesses today is how do we ensure we are faster than our competitors? Innovation can play a role, but the strategy must invoke a business version of ‘Fight or Flight.’ It means asking “How do we preserve cash and drive out costs or minimise the potential risk exposure for the business?”

For IT this increases the pressure to operate with heavily constrained budgets and become far more targeted with expenditure. Back in 2009 the Harvard Business Review offered an insightful reflection on the 2008 financial crisis that could well provide a guide to survival strategies in 2020. I would summarise its advice as follows: if you set the right strategy you can accelerate your survival and even create the resources to innovate. What you cannot afford to happen is for inertia to slow down your response. It really is becoming less ‘fight or flight’ more fight or die.

Overcoming instinctive corporate habits 

Whenever there is an economic downturn it is instinctive for the senior management team to look first at the big ticket items of staffing and suspending unused services or major projects that have not yet been commissioned. However, to survive companies should not be afraid to radically alter their plans. For the IT team it means using something like the MoSCoW model to re-examine priorities, and not allow inertia to slow the business down.

The goal is for the IT strategy to help the business buy time, postpone what is not essential and speed up decision making. That means what may have previously been a ‘must have,’ such as investing in an artificial intelligence application to monitor footfall through your retail environment, may no longer be a priority in the current circumstances. It could be that technologies and projects listed under ‘should have’ and ‘could have’ may become more important as they prove more helpful. 

What does that mean for your ERP strategy?

Prior to the crisis the big ERP vendors were suggesting to their customers that the cloud was critical to delivering the innovation and agility they needed to transform their businesses and compete with more nimble digital native companies. In the current scenario and applying the MoSCoW thinking it is questionable whether cloud migrations are even a ‘could have’ priority.

Moving your HR, Financials or Payroll to SAP S/4HANA or Oracle Cloud will not help you to drive down costs – if anything it could potentially create more challenges. In most well established industries – retail, financial services, manufacturing – you have built up stable, reliable processes for managing financials and moving to the cloud will require a re-implementation. In reality, not only does this mean you are unlikely to achieve the same level of functionality as in your existing in-house applications but the resources required for such a migration will be intense and costly. You only have to look at recent history to see examples of failed, costly implementations. Add to this the potential exposure to security vulnerabilities of adopting and integrating cloud-based applications and the opportunity to increase your business risks increase dramatically. You only have to look at SAP’s recent announcement of security vulnerabilities in its acquired cloud applications to understand how adding complexity to your IT infrastructure can leave you vulnerable. 

At this time of crisis you cannot afford to take such risks.

But what about support?

Of course, the big vendors will say that if you don’t move to their cloud platforms you will lose full support. Indeed, they’ve imposed various deadlines for support of existing applications to drive the point home.

What this really underlines is that if you’re not on the latest version of their applications you are probably not receiving the best support. And yet your ERP application is stable and works well for you. Why then would you pay for vendor support which does not allow you to keep your existing application intact to stay fully supported – it does not make sense. Furthermore, if you move to the cloud the re-implementation will likely mean you will have to bring in an entirely new team to support the platform – adding to, not reducing your costs. And on top of that you will face challenges to maintain those precious customisations you have built up in your long established internal ERP applications, because the big vendors don’t want you to take your customisations to the cloud. If you do guess what, it will probably cost extra.

You do have alternative strategies, including outsourcing and adopting third party support. 

Typically today in the UK third-party support has fallen into the category of ‘Could have’ priorities, but now it can play an integral role as companies seek to accelerate their survival strategies. Aside from the immediate savings of reducing your maintenance fees by 50 percent you have the potential to reduce the total cost of ownership (TCO) of your ERP applications by up to 90 percent. Importantly, this gives you the space to release, reallocate or refocus resources. It allows you to retain your existing ERP applications for up to 15 years, rather than having to contemplate a complex, costly move to the cloud with questionable returns. With the time you gain you can concentrate on what will really make your business fit for purpose and drive competitive advantage when right now survival may be the only advantage on offer.  

Fundamentally, why would you try to fix what isn’t broke?

Stay focussed on IT strategies that drive survival 

In the next few months you must take decisions that will be critical to your business’ survival. You cannot allow corporate inertia to cause delays. The decisions must be business-driven not led by the cloud vendors and shifting your stable ERP applications to the cloud will not accelerate your ability to survive. Using third party support to redirect resources to core business needs will help enable you to support the business and ensure your IT strategy is leaner and more focussed. This approach lines up with the concept of small teams enabling you to speed up your decision making and hopefully allowing you to avoid the fate of the gazelle in the proverb:

Every morning a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed.

Every morning a lion wakes. It knows it must outrun the slowest gazelle or it will go hungry. 

It doesn’t matter whether you are a lion or a gazelle. 

When the sun comes up, you’d better be running.

Even before the current crisis the life expectancy of a company on the S&P 500 had been forecasted to dramatically reduce to less than 20 years by 2027. In 1964, companies remained listed on the S&P 500 for an average of 33 years. While we don’t know the full outcome of the current crisis one thing is certain. If you don’t run faster than your competitors, you will not survive. It is an incredibly brutal reality of market forces, but if you create a far more focussed IT strategy you will increase your chances of survival. Do not allow your decision making to be overly influenced by what the cloud vendors want you to do. Make sure the business risks of moving to the cloud are considered and do not accept that it is your only route forward. Above all, do not allow inertia to creep in and slow down decision making. If you do the lions will hunt you down very quickly.  

*Mark Armstrong is GVP and GM EMEA, Rimini Street

Rimini Street did not pay for this article