There is increasing talk in the mass media of an economic slowdown. It even pops up in general conversation at dinner with colleagues and even clients. It is clearly a concern for many. But is a recession forecast? Even the Federal Reserve is not that good at forecasting a recession – see The Track Record Of Recession Forecasting. It is even thought that simply using the word ‘recession’ can have an impact in economic performance – see ‘I’m stunned’ by all the recession talk — Mohamed El-Erian warns against self-fulfilling prophecies.
I am no economic forecaster, but I do study debt and spending patterns as they play a role in influencing how and where CEOs and investors put their money. In other words, an economic slowdown of any magnitude impacts investment and that will impact IT, and IT-driven productivity. But not always negatively.
Slowdowns, even recessions, are thought to help clear out the dead wood, or under performing firms, in an economy. This sounds logical (i.e. creative destruction) but for the fact that debt levels may be more important a signal: a well performing firm might have taken in too much debt during the good times, such that when a slight downturn hits they are unable to weather the storm and so they struggle and may even fail. So where are we with debt levels in the US?
An Opinion piece, by James Piereson, a senior fellow at the Manhattan Institute, in today’s US print edition of the Wall Street Journal provides some data in growing debt levels in the US across the public and private sector. See How Debt Makes thr Market Volatile. The clarion call focuses on how long-standing low interest rates have encouraged greater debt levels and how small incremental increases in interest rates drive up interest payments on that debt. These growing interest payments mean the government has less money to doll out as transfer payments (welfare) and investments, and private sector firms will have less to invest in capital and innovation. Or will they?
When purse strings need to be reigned in, do we always cut costs? Many firms do for sure. But some firms have learned that a more useful way to survive a slowdown is to invest in people, process, information and technology (I and T, not IT) that change the economics of their business. In other words, additional even transformational investment upfront (quite contrary to the accepted wisdom in a slowdown) leads to a wholly new cost/benefit equation that helps widen margins. So while one option is to hunker down and slice ever more layers of remaining fat or even skin, another option is to change your clothing.
This is where our research into data and analytics is interesting, but also challenging. Every business leader is a chief data officer in waiting: because every business leader takes decisions and needs insight, better insight, to do so. Your head of sales takes decisions every day; your head of marketing, your COO, your head of HR and supply chain- they all do. Yet do they understand how their decisions are beholden to data, or how their very success depends on the need to exploit data to improve their outcomes?
When we say today a ‘data and analytics’ strategy we are not taking about an IT strategy that typically focuses on acquiring new technology (i.e. think of the cloud hype) like an analytics and BI platform. That “BI” is what we did 10 years ago. That “BI” is long gone. The assumption that just acquiring a BI platform (or subscribing to one in the cloud) will drive to better outcomes is gone. Far too many clients (in their IT organizations) relate “BI” to a technology acquisition and completely miss the information part of IT. Only a small number of clients I bump into use “BI” to mean “business intelligence” more broadly. The shine is coming off the jewel perhaps.
With the words ‘data and analytics’ today, we mean that the technology AND information (not IT) strategy becomes part or embedded in the overall business strategy. This aligns digital and data into one organized effort. As such, some investments will cut costs but many will help transform the economics how decisions are made. That is the secret to investing to widen margins without blindly cutting fat (or flesh).
But as with many such topics we have a language barrier. So much of what is talked about by IT-types seems technical and not relevant to business leaders. In my travels I see this too; but I also see some business leaders who can meet IT-types half way. To help bridge the divide we have data literacy. This is a new attempt, a modern attempt, to help remove the language barrier: to help everyone speak data with a business accent.
If we can learn the language in time, if we can identify which decisions or business moments can be transformed, if we can do this in time, we can help our organizations succeed at a time when all others are ducking, diving, and cutting. That’s the silver lining (for some) in a slow down, or recession. For those smart firms, there is no slowdown.
I have packed my bags and now heading off to London, England, to attend our Data and Analytics Summit. Hope to see you there! Let’s talk about data literacy and how to transform decision making for your business leaders.
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