Economists define a recession as two consecutive quarters without growth in the economy. We are closing out the first quarter of 2020 and so we won’t meet the technical definition of a recession until at least the end of June. But it is clear where things are headed. Last September I predicted a recession (click here to see what I said) but I had no idea it would be like this.
In 2008 we had a recession based on a collapse in credit market, but secular demand (based on consumer behavior) continued: People still bought groceries, drove their cars, flew in planes, and visited their grandmother. I was an IAR (Investment Adviser Representative) back then in 2008 and what people didn’t do was invest. With no investment, there was no money to fund credit. In the US there was already more real estate supply than demand, and with no more credit, what demand was there got obliterated.
Today it’s different. Nobody is buying groceries, driving their cars, flying in planes, or doing new deals. Personally, we were in the process of moving when this pandemic started to peak. We can’t move now even if we wanted to, because we are under 24 hour curfew. We can’t look at new places. If we magically found a place, we couldn’t move, because our stuff is in storage, and the storage facility has shut down in compliance with the national curfew.
Goldman Sachs has forecast a collapse in US Gross Domestic Product (GDP) of 6% in this quarter, and an unprecedented 24% next quarter. In other words, things will get worse soon, not better. Much worse. Unemployment will more than double, they predict.
Remember that game of ‘musical chairs?” Well that’s exactly what’s about to happen.
Companies are going into survival mode. The travel and tourism sector is already devastated. Planes are grounded, hotels are empty, convention centers are dark, but bond payments and mortgage payments continue coming due. One manufacturing client of mine with over 5,000 employees has shut down completely. Your income funds expecting dividends? Forget about it! Like George Bush Sr. (or more likely, comedian Dana Carvey) said: “Not prudent at this juncture!”
These companies will seek to achieve two things in the short to medium term: Cost reduction and flexibility. The Coronavirus COVID-19 Pandemic has illustrated the need for flexible, fault-tolerant companies that can operate across geographies and are prepared for contingencies. Companies with geographically diverse service delivery modalities are better able to continue operations uninterrupted during unplanned global events—like the one we are in now.
In 1917, the Spanish Flu Pandemic came in three separate waves. After the initial wave passed, people thought the worst had passed. But a year later, it came back stronger. Populations tired of the preventive sanitary controls put in place back then were more lax in their “social distancing” and precautionary measures so when infections flared back up, not only had the virus mutated, but people were, by their own actions more vulnerable.
We can expect, going into this period of uncertainty, companies will be very reluctant to add new staff or to increase their real estate footprint. Some industries, like airlines and manufacturing may take the opportunity to reduce unionized headcount and other expensive, permanent employees. The gig economy will grow, as will last-mile labor such as home delivery. I was too young as a child to remember milkmen, but I am old enough to have heard about them. People, according to legend, used to receive milk deliveries to the home in reusable glass bottles. I vaguely remember there being a diaper service that brought mothers reusable cloth diapers (yuck!).
Well this is back to stay. Amazon continues to consume the retail pie in every market where it operates, delivering practically every conceivable product that can be sold at retail. Here in Latin America, Rappi is the most famous unicorn. Backed by Softbank and a bevy of venture capital firms, the app-driven delivery service will bring just about anybody just about anything from just about any store or restaurant.
You had better be in sales mode; companies need your help!
Some people seem to be afraid to reach out for new business right now. That would be a grave tactical mistake. Not just because it isn’t smart business, but because you offer something valuable that people need, and they are desperately seeking solutions to stay in business. You can help them; in fact, you have a duty to.
If there was a flood, should a boat dealer close her doors saying “well, I wouldn’t want to take advantage of the situation.” NO! That’s when people need boats!
Look at this situation. Maybe it’s not to late to reach out to DoorDash? They are a rapidly growing home delivery provider, competitive with Über Eats. They are so desperate for contact center outsourcing that they are begging online travel agencies for agents. Is your business development team proactively reaching out to potential clients? You may be the factor that keeps them in business.
Please don’t bother Lisa, she has her hands full right now.
Third-party outsourcers also stand to gain as companies look to cut costs, but also figure out ways to become leaner, more agile organizations. Some companies wanted to do it before but found it politically or reputationally costly. Now is their chance. Other firms may not have considered it but will be open after struggling with a lack of flexibility and high personnel costs (including health care, real estate and logistics).
Things won’t be business as usual. Outsourcing executives must be proactive in defending existing business relationships. Clients may allow competitors into the executive office under the name of redundancy and vendor diversification, but of course this is a direct threat to the existing relationship. Don’t wait for contract renegotiations to offer cost savings and ways to operate more efficiently. Better that you find ways to reduce FTE rather than your client—or even worse, a competitor—reducing your FTE.
Just like in the game of musical chairs, there will be a lot of shifting around, changes in position, and some players will be left without seats. Don’t be one of them!
For the proactive, those who can execute and effectively communicate their value proposition, these economic conditions create a rare window of opportunity. Traditional global delivery providers, whether in IT Outsourcing, Business Process Management, Finance & Accounting Outsourcing, or Customer Experience Delivery, must differentiate themselves against traditional competitors who have not adapted to more modern business models or deployed technology-enabled offerings.
Your messaging must be:
Don’t wait for your client to tell you what they need. Show them the possibilities and what they can achieve through their partnership and relationship with you. It is important to be able to differentiate your offering—and communicate your difference based on these 7 factors.
- Talent — Talent is number one for a reason. At the bottom end, anyone can hire a bunch of cheap labor. But especially now, potential clients will be looking for partners who can offer talent at least as good as their own core employees. You must show that you can deliver superior talent compared to other options available to clients. You may think you have this, but can you back that belief up? Can you quantify it? Under these conditions, the new opportunities will be higher up the value chain. At the bottom, those functions have gone to the bots and are not coming back.
- Technology — Speaking of bots…How mature is your operation when it comes to utilizing artificial intelligence for enhancing customer experience? Remember, the key word is enhance; not simply replace humans with inferior, first generation automated voice response. How far along the curve are you when it comes to deploying RPA (Robotic Process Automation) against algorithmic processes in your client’s business processes? And are you sharing those cost savings and increased efficiencies with your clients?
- Geography — This pandemic is showing us the importance of geographic reach. Providers with geographic redundancy and the ability to shift operations across the globe to meet demand and face contingencies are distinctly advantaged compared to localized, geographic niche competitors. Political factors have often driven location decisions in the past, now we are reminded we must consider natural calamities, from hurricanes to epidemics.
- Expertise — This is related to, but not the same as talent. You can have great people, but do you have the deep domain knowledge that gives you the advantage in your client’s specific industry? That may be travel, financial services, insurance, health, telecom, etc. The point is that this is when specialization works to your advantage. It doesn’t mean your entire organization necessarily must be dedicated to one industry vertical, but that you have dedicated practice areas and sector experts who can add value and competence above and beyond basic client expectations.
- Resilience — How well has your operation been able to adapt to the current pandemic? Were you already at least partially work-from-home, or were you able to easily adapt? We are seeing different public health policies directed towards contact centers right now. Some are deemed essential services and allowed to remain open, while in other jurisdictions they have been ordered shut down temporarily. Are you managing a “fault tolerant organization?” Make sure that A: you are, and B: your clients know it.
- Agility — The reluctance of large employers to add staff in the coming months creates an opportunity if you are properly set up to take advantage of it. Uncertainty means potential and existing clients are more willing to scale up with you, as long as it gains them flexibility when it comes to making future adjustments. This means you must be operating in jurisdictions with flexible labor structures, with geographic diversity, and the ability to respond quickly to your client’s changing business conditions. The most responsive providers will win.
- Cost — Yes, cost is obvious, however the cost is not the price. Clients will be looking to lower costs, but that as you know, is not the same as lowering the price. Cost efficiency takes into account productivity, quality, and the added flexibility and risk mitigation your clients achieve with you. When you can manage costs on behalf of your clients, align your outcomes with theirs, and enable them to better compete and provide services to their own customers, this can be a growth economy for you.
Small operators can also compete on specialization and customer intimacy. Get to know your clients and adapt yourself to their operations, rather than “onboarding them to your system” as larger operators tend to do. Smaller companies right now are facing the same challenge as larger ones, and this is an opportunity to introduce outsourcing to them earlier in their lifecycle than they might normally consider it an option.
Still, in the long run, depending upon too few clients is dangerous so in most cases, operators should be seeking growth and diversification in their client base. It probably wouldn’t be a good time to only handle cruise ship reservations during this quarter or next. There is safety in numbers…and diversification.
Contact the analyst at www.lorenmoss.com
Loren Moss supports clients with detailed, unbiased research, and also when it comes to effectively communicating their specific value proposition and key differentiators to prospects, stakeholders and the public.