First Things First: Nobody Cares About Your Concerns
Let’s start with the critical truth: You’re concerned about how well you’ll perform in the face of the coming challenges. Nobody else is. They’ve got their own concerns.
- Customers are indifferent to your challenges. We learned this in the pandemic: Consumers rewarded you when you met their ever-changing needs, not when you demonstrated courage in making tough decisions. A year later, you had to face the trust imperative, as consumers continued to focus more on themselves than on your ability to meet their needs. The same is true now: In the European Union, consumer confidence is actually lower today than at its lowest point in the pandemic. If you’re selling to B2B organizations, your customers are even more indifferent to your needs, as they’re focusing on delivering more value to their end users. Whether you’re in B2C or B2B, your approach to the uncertainty of 2023 must be guided by these expressions of customer obsession: count on us; at your service; and on your side.
- Employees have their own needs and opportunities to consider. Add up the things your employees are concerned about — inflation; consumer product shortages, including medications; energy prices; and regional political conflict — and it’s safe to assume they’re worried and distracted. Yet the job market is still amazing for most workers in most roles and geographies, meaning that they’ll approach this uncertain year with more freedom than they (and you) are used to in a downturn. Their fear of layoffs is still very real: In a November 2022 survey, just 70% of US, 58% of UK, and 59% of French employed online adults said they feel their job is “safe.” But the fear that an employee will choose to leave you because you’re handling the stress poorly should be just as real to you.
- The economy’s going to do what it’s going to do. The economy isn’t an entity with feelings, and you must remind yourself of that periodically as you see a mix of growth, recession, cutbacks, and investment, depending on your market, timing, competitive set, and luck. You can’t rely on a generally sluggish economy to hide your executive team’s lack of decision-making capacity. For example, we forecast that growth in US tech spend will fall from 7.4% in 2022 to 5.4%; that still outpaces the US GDP growth forecast of 4.6% for 2023, while median real US GDP growth is forecast to reach just 0.5%.
European GDP growth will be weaker still, with a 0.3% forecast for 2023. Currency falls have led the US dollar to a 20-year high. This will also affect the US, where export-dependent industries that generate a larger share of their revenue outside the US — notably chemicals, technology, and autos — face more exposure to revenue slowdowns. S&P 500 companies with a strong international exposure saw their share prices lag those of US businesses that generate most of their revenue from the domestic market. The strong dollar saw IBM lose $900 million of revenues in Q2 2022, while Microsoft’s margins and revenues fell by 2%.
2023’s Unprecedented Downturn Is Different
It’s decision time: Will you read and follow the headlines or will you strike out on your own and carve an insights-driven path that your competitors will later wish they had imitated? Avoid becoming distracted by arguments over whether and when a recession is coming or whether your planned cuts, if any, are in line with those of other firms. And avoid the trap of thinking that if you just do what worked in the Great Recession of 2008, you’ll somehow survive. This downturn is different. It’s:
- Coming on the heels of a pandemic-inspired reshuffling of business models. Prior recessions have followed a boom-bust cycle: The prolonged prosperity of the late 1980s transitioned to the economic doldrums of the early 1990s; the cycle of tech-fueled prosperity in the late 1990s led to the dramatic dot-com collapse in the early 2000s. The 2023 downturn is the first to immediately follow an already huge disruption. Companies aren’t simply having to cut back from their boom-fueled extravagances; they must tighten their belt while continuing to invest in the innovative changes they just made to their business models, their approach to talent, and how they deliver value to their customers.
- The first talent-constrained recession in history. In every month of 2022, the US saw at least 5 million more job vacancies in need of filling than unemployed people. This has never happened before and is the result of many different factors, including the basic demographics of an ageing population. Even with big layoffs already announced, November began with 4.2 million more job openings than people to fill them. And the layoff rate was stable. As the downturn intensifies, we’d still have more job openings than unemployed workers even if companies were to pause on 2 million job openings and lay off 2 million people. This means that even if you make cuts, you should also actively hire the best people you can find for the roles you need if you can’t find their equivalents internally.
- A global downturn that won’t happen everywhere or at the same time. Typically, a crisis in the financial markets suddenly deflates company valuations and triggers a recession, leading to restricted investment and self-fulfilling cuts in growth-oriented spending. This downturn involves multiple factors: Inflation, soaring energy costs, supply chain challenges, regional conflicts, and changing worker demographics all contribute, even as liquidity is incredibly high and consumer confidence remains high in many markets. These factors combine differently across regions and industries, ensuring that each will experience it differently. For example, our forecast for global tech spending in 2023 differs dramatically for different regions — and for different countries in the same region.
Consider Your Long-Term Strategy When Responding To The Downturn
This downturn will be different, so you must adjust your business differently. The pandemic showed that while the unexpected circumstances were difficult for most, those who made smart bets came out on top. Confidence in executive leadership rose from a meager 24% in early 2020 to 42% in 2022, precisely because executives led with confidence and agility when the chips were down. Forrester’s November 2022 survey of workers shows that 62% of US, 49% of UK, and 47% of French employed online adults believe that their leaders can “successfully manage through a recession.” How?
- Make smart cuts and smart investments. Cutting costs often means cutting staff as well as reducing budgets and investment in ongoing operations and product projects. Having learned from prior recessions to respond quickly when a downturn rears its head, panicked execs impose cuts across the board, asking the business to save 5% or 10% overall. This brute-force approach guarantees that cuts are as likely to hurt as help, as they will be independent of the organization’s long-term strategy — particularly in a talent-constrained environment — and undercut employees’ faith in leadership. A smarter approach will actually increase investment in some areas because the market opportunities will be ripe as competitors get out of the way (see Figure 1).
- Put talent at the center of your long-term strategy. Currently, 54% of US and 43% of UK and French employed online adults believe that their organization will make personnel decisions in a “careful and human-centric” way. Look no further than the contrast between the recent handling of firings at Twitter with those at Meta; the latter came with clear business rationales and organizational support. When considering cuts, identify the individual contributions and skills that will take your company into the future. Invest in a talent intelligence program that tracks workers’ skills and performance capacities beyond static job descriptions or faulty performance reviews.
- Choose the right customers to obsess over. Resources are precious in this particularly fraught economic downturn. Our planning guides tell you where to defend, reduce, and/or experiment across your organization based on our benchmark data. To do this right, it’s just as important to decide which customers not to serve as it is to obsess over who to serve now and in the future. Underperforming markets lead to underutilized operations, neglected technical debt, and the waste of valuable resources that you could align to better opportunities.
The Best Defense In This Economy Will Be A Proactive Offense
Your toolkit for managing economic uncertainty shouldn’t rely on hunkering down and trying to outlast it. While a reactive mode may sound resilient, staying passive will squander the opportunity to lead your industry and people forward. From the inside, workers who feel like they’re on a winning team are more likely to be engaged at work; 60% of full- or part-time employees say their company is innovative and forward-looking, based on Forrester’s 2022 data. From the outside, Euro Stoxx 50 companies with R&D to sales ratios of over 10% have grown faster over the past 15 years of ups and downs. A proactive, growth-oriented approach will help you spot the opportunities that arise, just as the smartest leaders did during the pandemic when they changed their products, processes, and customer experiences to respond to changed circumstances. It will also help key stakeholders reach their target destination. How?
- Provide innovations that meet customers’ needs and give them a sense of control. When the pandemic started, Forrester’s Consumer Energy Index captured consumers’ myriad growing concerns that made them more cautious. But we also saw that their willingness to try new things didn’t drop; in fact, when brands offered them the chance to increase their sense of agency or control over their situation, consumers responded positively. That can happen again, but only if you actively measure whether you’re meeting their experience expectations and offer them the combination of control and innovation that they believe will meet their needs. Ensure that your downturn messaging is less about your brand and more about the benefits — flexibility, empathy, adaptability — that you want to deliver to customers.
- Offer consistent, communicative employee experiences that increase productivity. Employee experience (EX) is the sum of all the perceptions that employees have while working for your organization every day. You can increase EX by exercising empathy, granting employees appropriate autonomy, and giving them the tools to succeed. Leaders often discard these pro-EX leadership behaviors during a normal downturn. But this isn’t a normal downturn, so you shouldn’t be a normal leader with regard to EX. Buck the trend of executives who believe against evidence that they’re better off calling all hands back to the office, for example. Focus on what you can prove works to engage your people — and then lead them forward to victorious innovation rather than into a cautious retreat.
- Be selective in how you continue to invest in partnerships. While external partners will play a crucial role in growing your way through this downturn, not all partners will. As you select which customers and employees to invest in, do the same with partners — making smart cuts as necessary. An easy example: As the quality of third-party consumer data continues to drop thanks to decisions by regulators and Apple, you can reduce your third-party data partnerships to those that add value to customer relationships and offer a future-proof solution. Similarly, many firms have relied too heavily on partners for digital innovation, especially during the pandemic-induced digital sprint. You must now align the needs of customers, employees, and partners by bringing the most strategic of these abilities in-house for faster innovation and an internal energy boost.
- Focus the board on the insights about your business. Ahead of your next board meeting, members will have read the latest headlines about layoffs in other locations or industries. You can steer them away from reactive, herd-like action toward smart moves, including the smartest necessary cuts, if you’ve built an insights-driven business capability — something just 48% of data and analytics decision-makers say they’ve done. It’s not too late to start; elevate workforce and customer analytics talent and tools to highlight what really makes your organization tick. And when competitors announce plans for retrenchment, publicly express sympathy but privately look at every person laid off across your industry as a possible new hire, think of every product that competitors scrap as an open door for your offerings, and see every partnership walked back as an opening in your ecosystem.