Winning With Innovation In Turbulent Times

By Charles A. Riggle, President, Carpéggeo

Are you a CEO, COO, or Innovation Leader having difficulty making important decisions about projects for the second half of 2022, and investments for 2023 in light of confusing market signals?

If this describes your situation, it’s no surprise given the broad range of expert opinions about the current state and future of the economy. (Are we in a recession, or not?)

J.P. Morgan Asset Management, Chief Global Strategist, David Kelly offers that there may be a recession, but, “if it occurs, [a recession] should be mild by the standards of recent contractions due to a lack of excess in the more cyclical areas of the economy and the strength of the labor market at its outset.” That doesn’t sound too bad.

It may be a surprise to learn that the companies that came out on top employed a combination of strategies that parallel the approach of successful Digital Transformation initiatives.

Bridgewater Associates Co-CIO, Bob Prince shares Bridgewater’s well-articulated analysis, which points to strong indications that the economy is headed for prolonged stagflation. This is postulated because while the Fed has aggressively raised interest rates, the labor force is strong, and the market has already priced in the discount needed to get to 2.5% inflation. With a slow contraction from further policy tightening to get to this discounted 2.5% rate or eventually the Fed targeted 2%, it could still take a couple of years. That sounds potentially harsh.

Compare that to the message from Fed Chairman Jerome Powell, who said in a press conference after the Fed actions on July 27, “I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well.” In his remarks, Chairman Powell indicated that the two recent large (0.75%) rate increases have put the Fed’s policy rate at what policymakers call a “neutral” level, and when asked about further rate hikes, he said, “We’re leaving ourselves room to look at the data and make a decision as we get there.” Subsequent to his press conference, the S&P Index rose 2.6%, the NASDAQ gained 4.1%, and the DOW added 1.3% for the day.

Sure, depending on who’s right, this potential downturn is enough to freeze business leaders in their tracks. No one wants to make a wrong move. But what if we look at market uncertainty as an opportunity?

Digital Transformation is the process of incorporating new business processes, cultural behaviors, and customer experiences, while leveraging the powers of digital technology to meet the changing demands of business and market requirements.

The current high level of market dynamics can and should be considered a decision catalyst to help drive digital transformation initiatives in otherwise healthy organizations, large and small. Let’s look at why that makes sense.

In 2010, Harvard Business Review studied 4,700 public companies to analyze corporate performance during three prior recessions—1980, 1990, and 2000. In 2008 they began a study to identify the strategies companies use during an economic downturn, and to determine who would be the post-recession winners, which they published in 2010.

It may be a surprise to learn that the companies that came out on top employed a combination of strategies that parallel the approach of successful Digital Transformation initiatives.

In summary, HBR found, that post-recession winners that produced outsized revenue and profit gains versus their contemporaries are companies that take a progressive approach of optimizing selective defensive actions for operational efficiency combined with offensive actions to develop new markets and invest in assets such as plants and machinery.

Comparing this approach with best-in-class Digital Transformation, we see similarities with progressive strategies for navigating a recession. Defensively, we see the use of digital technology to increase visibility, prediction, and automation of enterprise processes and systems combined with selective reductions and reskilling/upskilling of workers to make operations more productive. Digital leaders also go on the offense, investing in existing and new markets while keeping very close to customer needs to maintain a sharp focus on investment decisions.

This ambidextrous strategy of optimized operations productivity and simultaneous investment for long-term growth isn’t easy. Leaders must develop new organizational muscle, which often requires well-orchestrated change management in addition to the deployment of enabling technology. Applying the agility necessary to experiment to find what works while holding the course on long-term profitability growth takes both courage and discipline. What the winners from the HBR study and the industry’s digital transformation exemplars show is that companies that strategically build organizational and technical capabilities, develop agility and resilience, and focus on the customer’s experience can not only prosper through downturns, but also dominate following market recovery.

Maybe you’re a CEO, COO, or Innovation Leader worried about the financial impact of a potential economic recession. Possibly, you are already a market leader and want to set your company up to emerge from a market downturn in an even stronger position than today. Whether your company is large or small, history shows that there is no time better than now to begin, or to recommit to building the capabilities and capacity to maneuver faster, and to serve your customers better, regardless of market conditions. Whether there is a recession in the coming year or not, business leaders who embrace a business strategy combining operational productivity together with market and asset development produce the industry leading corporations that outperform over the long-term. Rational concern about today’s unprecedented market volatility is the catalyzing force that will drive digital transformation and produce the next set of industry winners.

Chuck Riggle is President of Carpéggeo, LLC, a business strategy advisory firm that specializes in helping enterprise leaders to articulate their ambitions, build organizational support, and execute growth strategies in a business environment marked by continuous change. We help companies prepare and position to lead in the Exponential Age.