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Coping With Economic Distress

When economic upheaval threatens corporate earnings, the typical response actions taken by the Board to stabilize the corporate financial picture can have damaging consequences for long-term recovery:

  • Freeze new hires & overtime 
  • Layoff non-critical personnel
  • Reduce working hours
  • Negotiate more favourable supplier terms
  • Cancel discretionary (innovation) spending
  • Delay new project investments.

The intention is to project to its shareholders effective, fiscal responsibility for long-term viability. Loss of human capital is the most damaging to long-term recovery as skills investment and staff are lost to the winds of opportunity elsewhere.

What is missing from this picture of sustainable health?

  1. The company has frozen its potential.
  2. Lack of innovation investment puts the company in a retrograde trajectory.
  3. The business will be vulnerable to takeover by more agile organizations.
  4. Liquidating human capital without offsetting through innovation is a self-defeating strategy.

What could corporations do differently?

Revitalize the company through modernization to cut cost from the P&L and strengthen the balance sheet. An aggressive modernization program can reduce operational costs and reallocate the savings to skills retention and growth.

It’s so obvious, yet seldom promoted in a crisis response.

Why don’t shareholders buy into modernisation?

Modernization investment is not so precise in terms of its cost, timeline or delivery. It involves complex interdependencies within the organisation with each stakeholder having different priorities. Shareholders demand more immediate, tangible measures.

Organizations become stuck between a rock and a hard place. Failure to make progress equates to inefficient use of resources, and loss of potentially job-saving cost reductions. 

Best practice: identify quick wins that demonstrate good fiscal guidance and don’t hurt the business

Human ingenuity in the face of disaster is the canvas of human survival. Every department can find ways to reduce and optimize within their own area of activity, but it is difficult to project some of these onto a balance sheet.

One obvious cost optimization strategy for all large enterprises is: to liquidate their inactive legacy systems.

By liquidating sunset applications retained just to access their data, Human Resources can protect the organization’s higher-value skills, and the savings can be reported as fiscally-responsible cost cutting.

There is no doubt which is more valuable – a versatile worker or a redundant piece of technology to access data. Data preservation can be transferred to a modern, low-cost, accessible data archive platform.

The facilitator of such quick wins is a technology called DataNovata, that can automatically generate a digital replacement of the legacy system, with better access, at lower operating cost. That money can be put directly into the P&L with no capital required.

DataNovata can generate measurable return on investment within 12 months, reduce the cost of business operations and eliminate out-of-date technology at the same time.

In looking at the entire database portfolio, large corporations could project cost savings of millions of dollars to reduce the long-term damage of mass layoffs, simply by firing the under-used, expensive applications they use to access them, with no negative consequences to the business.

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Reference materials:
Gartner Research: Decommissioning Applications: The Emerging Role of the Application Undertaker
Published: 18 September 2019
There Are Many Options for Data Retention After Application Decommissioning
Published: 2 March 2020
HRMA: Impact of Forced Layoffs Research Results

Categories: NSC Blog

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