I think we can all agree that the decision on whether or not to invest in technology is one that absolutely needs to be rooted in the concept of Return on Invested Capital (ROIC).
This is especially true in tight economic cycles and even more important for companies that are experiencing difficulty in generating free cash flow due to margin contraction.
If you look back throughout history, you'll notice that when economic uncertainty rises, a certain corporate pattern emerges. That is, the vast majority of companies prepare for bad times by contracting their spend and they typically do so by:
This obviously has a negative impact on productivity, but the leaders of these organizations have the audacity to turn to their investors and preen about how much "efficiency" they're driving in this new era of management (I'm looking at you, Mark).
Let's be clear, doing less with less is not efficiency.
Look, I'll own that I'm pretty triggered by the corporate pattern I've been seeing over the last 6-18 months, but at the same time, I can't fully blame the leaders of these organizations because the seemingly knee-jerk reaction is rooted in human psychology, as erroneous as it might be.
You see, most people don't manage risk in their personal lives. The data shows that when times are good, people take on more debt, spend more, and save less.
They embark upon vanity projects and the scrutiny applied to financial investments tends to be at its lowest. This drives asset prices up and people continually over-leverage themselves thinking the good times will never end.
Comparably, when times are bad or there is an expectation of bad times ahead, people try to cut spending but oftentimes it's a little too late for moderation and people are forced to make drastic spending decisions. This drives the demand for assets lower which in turn drives asset prices down - but the majority of people can't take advantage of this because of how they positioned themselves during the good times.
My man Warren Buffet has an iconic saying:
Be fearful when others are greedy and be greedy when others are fearful.
I'm sure you'll agree that Warren B is right on this one (and if you don't, he has the receipts to prove it). Nonetheless, the age-old trend I'm talking about is exactly the reason why so few people see the opportunity that lies in the chaos of public fear, uncertainty, and doubt. And this is the exact same pitfall that I see so many companies fall into.
Why? Because companies are run by people, and if you take a close look at the last two years, you'll start to notice the very human tendencies reflected in the behavior and decision-making of these companies.
To be clear, my argument is not that companies should be careless of their spending habits in tight economic cycles. Quite the contrary.
My argument is that companies should ALWAYS apply scrutiny to their spend and only make purchasing decisions if the ROIC is above a pre-determined threshold.
This is especially true in tight economic cycles like the one we're in today.
Enter business automation...
Investing in business automation can and should be a significant investment for any company that is serious about maximizing productivity, generating free cashflow and improving both the customer and employee experience.
It's even more important for companies that are facing margin pressure and are struggling to generate cashflows, even though making a significant investment during a downturn might seem counter-intuitive at first.
This is simply because, if executed correctly, it's one of the very few investments that a company can make that will generate a double to triple-digit ROIC over a 5-year period, while maintaining a pay back term of less than 18 months.
Sounds ludicrous doesn't it? Good, because it is - and it's mind boggling how few organizations are exploring, let alone investing in that potential return in a meaningful way.
In general, investing in enterprise automation helps companies to improve the efficiency of operations and helps companies generate more revenue without an equally linear increase in their cost of revenue over the long term.
Recommended by LinkedIn
This is the real definition of efficiency - doing more with less.
Below are some of the benefits of investing in business automation that matter most in a tight economic cycle:
Increased efficiency:
Automation can help companies streamline their operations and reduce costs. By automating repetitive tasks, companies can free up their employees to focus on higher-level tasks and improve overall efficiency.
Improved accuracy:
Automated systems can reduce errors and improve accuracy in critical business processes. This can help to reduce costs associated with errors and improve customer satisfaction.
Scalability & Agility:
Automated systems can often be scaled up or down as needed, allowing companies to adapt to changing business needs more easily. Once you converge AI & Automation, you change the game.
Competitive Advantage:
By investing in enterprise automation, companies can gain a competitive advantage by improving their operations, reducing costs, and improving the quality of their products and services. This in turn has an impact on customer acquisition and retention.
That being said, investing in enterprise automation is a significant investment in both time and resources, and it's important to carefully evaluate the potential ROIC before making a decision. Here are some factors to consider:
Upfront costs:
Enterprise automation requires significant upfront costs, including software, implementation, staffing, and transformation costs. Companies will need to carefully evaluate the costs and benefits of the investment to determine whether it makes sense financially.
Time to value:
Depending on the specific application, it may take some time before a company sees a return on its investment in enterprise automation. The key is understanding the pay back period and evaluating whether the cash flow impact is mitigated by the time it takes to realize material value.
Execution risk:
Investing in enterprise automation also carries some risks, including the risk of implementation failure, the risk of obsolescence, and the risk of disruption to existing business processes.
This is why vendor and partner selection is key - but equally important is the necessity to ensure that the right internal resources are aligned and that executive sponsorship is pronounced and multi-threaded.
With this being the case, it's important to carefully evaluate the potential benefits and risks associated with investing in business automation before making a strategic decision, and to ensure that the investment aligns with the company's long-term business goals and is in line with capital allocation requirements.
Overall, investing in enterprise automation is a significant decision for any company, but especially those that are facing significant cash flow pressure.
Ironically, it's these companies that have the most to gain, if only they are bold enough to take action when others are playing it safe.
If you don't know, now you know!
-Christopher George Latore Wallace
