By: Alsya Rosaly Putri Hadianti & Stefanie Andrilla Salim
Looking forward is always a tricky business.
The year 2023 has been a turbulent journey for America’s most dynamic industry, tech. A bear market in tech stocks, surging costs, and an imbalance in the labor market due to the ongoing trend of the great resignation led to a notable tumble. After bold statements on how tech can create a new future of terrestrial mobility, numerous confident investors and article headlines—who jotted down reasons why tech is such a prospective sector in 2022—suddenly question themselves facing such an anomaly. However, is this the end for tech companies? Definitely not! They have to freshen up their perspective and perceive this crisis as an opportunity to gain advantage. They can and must adapt to get back on track and emerge stronger. Did you know that the 2023 downturn is not the first pitfall for the industry? And there are companies that managed to tackle those crises? Let’s unveil their strategies on stepping up their game and becoming the tycoons of the tech world we know today!
First things first: be on the same wavelength
“The ‘problem’ isn’t always the problem,” states The McKinsey Way. Finding the crux of the matter is crucial for companies amidst a crisis. Always dig deeper, avoid wasting such precious resources by beating around the bushes and find what actually matters. For example, due to the dotcom bubble burst in 2008—one major crisis when tech stocks are overvalued thus its intrinsic value plummeted—, Amazon saw a drop in profits. However, they didn’t immediately cut corners by eliminating auxiliary elements, they instead dug deeper to see the real pain point. Turns out, their base program, Sun, is the real cause of the rise in cost of goods sold. What’s their next move? Amazon made a radical decision! They chose Linux—a relatively new Open Source-based program—as a substitute carrying a sheer glimpse of hope. Eventually, this radical choice was a chance of a lifetime which led to the founding of Amazon Web Services, one of the best businesses in the world.
Second: embrace the uncertainty
The triumphant relief of analyzing a problem and developing a solution is only the beginning of the story. Ranging from minor adjustments to complete change of plans, companies have to be flexible with their operations and adapt to swift changes in order to sustain their success. Let’s take a look at Netflix: Are you aware of the fact that Netflix was once a leading DVD dealer? However, when DVDs dimmed out by time and new competitors started to emerge, Netflix faced a harsh reality. In a blink of an eye, everything changed due to the pressure of the 2008 global economic crisis. Netflix didn’t just face it, they turned the tables through changing consumer vibes and tech trends. This wasn’t just survival. They went from DVD struggles to leading the charge in the digital entertainment revolution, building their global empire one binge-worthy show at a time. Who knew an economic crisis could be the plot twist that turned Netflix into the superhero of our streaming dreams?
Contrary to the assumption that tech giants are immune to tech downturns, recent events have disproved this notion. Even Microsoft, a prominent industry leader, encountered challenges in the aftermath of the COVID-19 pandemic. Before the chaos, they were tech royalty with Windows, Office, and Azure. During lockdown, Microsoft faced challenges, but guess what? They turned the pandemic mess into a Microsoft Teams success, shaping an advantage with their top-notch tech for remote magic. In post-COVID era, they kept their money game strong, prevented workforce termination, and cranked up the cool with Microsoft 365, smart Office AI, and cloud wizardry like Azure Synapse Analytics and Azure AI. With these moves, they successfully navigated the challenges of the tech downturn and positioned themselves as leaders in the evolving market.
Third: understand that the mother of innovation can take many forms
Innovation can be done even in the most rigid elements like accounting, where everything follows a certain order and is predetermined. To stay afloat, companies can come up with legal practices that are more effective to maintain cash flow and a healthy liquidity ratio. Recalling from earlier, Amazon used a cash machine business strategy involving Cash Conversion Cycle (CCC), a metric showing how many days it takes to sell an item, get paid, and pay suppliers. What makes Amazon’s CCC special is their ability to delay payments to their suppliers due to their diverse marketplace. This results in Amazon’s CCC to be negative, which means they sold inventory before even having to pay for it. Thus, a negative CCC allows Amazon to borrow from its suppliers to finance its activities interest free. So, despite having a very small net margin, when a company is able to lead its suppliers into favorable concessions and keep inventories revolving, it will allow them to consistently generate positive cash flows overtime and possibly better deal with downturns.
The bottom line
Amidst the tech rollercoaster of 2023, the big players faced their share of challenges. However, it is important to refrain from panicking and remain content. It is not the end for tech; rather, these hurdles—namely bear markets, surging costs, and layoffs—are stimulants for companies to adapt and innovate. What matters is how companies perceive the crisis and how they can find the ideal area of improvement. Take a cue from Amazon, Netflix, and microsoft: find the root of the problem, analyze it thoroughly, be flexible with your plan, and remember that there is always a place for innovation. Shape your advantages strategically, understand that resilience is key, and manifest it by creating ingenious change.
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