Credera is excited to announce the release of our first full Technology Tangents podcast episode: "Preparing for a Recession".
In Technology Tangents, Credera's Chief Technology Officer and Chief Data Officer bring leaders together to discuss the modern technologies of today and how organizations should navigate the implications for tomorrow.
The discussions are fun, lighthearted, and frankly opinionated, but hopefully it gives technology leaders a sense of what matters, what to pay attention to, and what to ignore.
This podcast is available on iTunes, Spotify, and Anchor FM.
On This Episode
Globally, there is deepening concern that we're headed in the direction of a recession, due to high inflation, drastic rate hikes, and the war in Ukraine.
There is currently a 98.1% chance of a global recession, according to a probability model run by Ned Davis Research. "The only other times that recession model was this high has been during severe economic downturns, most recently in 2020 and during the global financial crisis of 2008 and 2009."
So, how should organizations prepare to not just make it through this likely recession, but come out even stronger on the other side?
Jason Goth, Credera's Chief Technology Officer, Vincent Yates, Credera's Chief Data Scientist, and Kevin Erickson, Credera partner and Operations lead, discuss the implications of the looming recession for business leaders and how organizations should prepare in times of uncertainty.
The following transcript has been edited for clarity.
Vincent Yates (00:01):
Welcome to Technology Tangents, conversations for leaders in tech. We get technology leaders together to discuss the important tech of today and the implications for tomorrow. Our discussions are fun, lighthearted, and frankly opinionated, but hopefully gives you a sense of what matters, what to pay attention to, and what to ignore. Joining me as always is our Chief Technology Officer, Jason Goth. Welcome, Jason.
Jason Goth (00:24):
Vincent Yates (00:25):
And before we introduce our guest, you may have noticed that intro sounded a little bit different, or were you sleeping, Jason? Did you hear it?
Jason Goth (00:31):
No, I noticed the difference.
Vincent Yates (00:32):
You did? All right, well done. You've passed the first test today. For our listeners, just so you know, we have started a new series called Technology Tangents. It is related, but distinct from the previous, Technically Minded. Still brought to you by Credera, still the same people, still the same level of opinions, I suppose, and hopefully still insightful for you. With that, let's get into it. Joining us today is Kevin Erickson, a partner based in Dallas focusing on delivery and operations, but a deep, deep background and expertise in strategy and growth. Welcome, Kevin.
Kevin Erickson (01:10):
Well, thank you.
Vincent Yates (01:11):
High bar for you though as our first guest ever, premier guest right here.
Jason Goth (01:15):
That's right. You're the opening act.
Kevin Erickson (01:18):
That's good. All right, I will be number one on the leaderboard, so I like that.
Vincent Yates (01:22):
Hey, that's a great way of framing it. Okay, well let's get into it. The thing I want to talk to you guys about today is the scary R word. You know what I'm talking about? Recession. Have you heard this? This is all over the news. Is it a recession? Is it not a recession? What does a recession mean? What are the implications thereof? Less about whether or not it's a recession, although I will say opinionated, I think it is, but that's a separate point.
From my perspective, the thing that would be most interesting to discuss today is what are the implications for businesses? If I were a business leader, what would I think in this market that may be recession or may not be, but either way, it's highly volatile. Just to get us kicked off with a few stats here, let's rewind the tape just a little bit. If you go back about six months now, we published numbers... Not we. The government published numbers March 29th. There were 11.27 million job openings and unemployment numbers, people who were unemployed, were only 6.27, so roughly five million extra. We've closed that gap a lot. You've seen a lot in technology news about layoffs happening. This is happening all over the place. Just this week in fact, Microsoft laid off some people, about 1000 people. Equifax last week, Oracle, Intel, Spotify, Peloton, DocuSign, Ericsson, Klarna. The list goes on and on and on.
In fact, if you look at roughly how many people have been laid off in technology alone in October, just October, and by the way, this is being recorded October 20th, so not even closed yet, 24,000 people have been laid off. Again, if you go back to March, January, February, layoffs were hundreds. It peaked in June, around 30,000 people were laid off from technology jobs alone. Tesla being the biggest of those at that moment in time. Continuing on 21,000, 21,000, 10,000, now 24,000 roughly.
My question to you is how as a business do you start to think about this? If you go back, we know there's some economic pressures, we know there's supply side constraint going on here that leads to the inflation. Typically, that would lead to a place where you would actually have layoffs taking place because you just don't have as much revenue coming in so you're not selling as much stuff. In this case though, the job market is so tight with so many jobs that are open, so few people who are unemployed, that has played a little bit differently this time. How do you even begin to wrap your head around as a leader of what's really going on here in this fairly unique moment? At least it feels unique. Maybe you can tell me I'm wrong. It might have happened before.
Kevin Erickson (03:55):
Yeah, the first thoughts around that is what is recession-driven? What is really previous business decisions that were being made over the last 24 months? So it may over-hire to grab as much talent as you could. As the cost of labor continues to go up, that's the other thing that's being driven here is how do they right-size their labor costs and what that looks like. Yeah, I think that as I start to think about how a company looks at it, you're starting to deconstruct the different components of that. What is your cost of labor? What is going to be the cost of where you're going to do that work? In office hybrid, what that looks like? What do we think consumer demands going to be? How do we try to anticipate what the government and really what's going to happen from a macro perspective?
I mean, you had a prime minister get resigned today after two months, right? The different elements of what's going on and what's driving, and I think that what you're seeing is primarily companies trying to right-size their costs and prepared for what they don't know what to come.
How Should Business Leaders Think About an Upcoming Recession
Vincent Yates (04:57):
It's a great point. And look, if you think about a prime minister of England who just resigned today, as you said, this is a person who has world-class experts surrounding her, giving her advice, and she apparently gets it dead wrong. At least that's what the consensus seems to be and that's why she's ultimately resigned. How do business leaders even begin to wrestle with this? Are there books? Are there classes? Look, what do you do? Or do you just go back to the basics, which is how do I grow my top line, how do I do that while preserving my bottom line and really just retrench around those ideas?
Kevin Erickson (05:30):
I think that that's the approach that I would take because I think if you look at why does she resign or what that looked like, I mean, in many ways it's because her policies were not what was expected, and not expected from really kind of whoever's driving what they expect now today be, and I think it's driven by irrational elements or driven by just fear, driven by uncertainty, driven by agenda, and I'm not trying to say anyone's the bad guy in that scenario, it's just saying it's not about fundamentals, in my opinion.
So now if you're thinking about as a business, what can you control, well, you control what you sell, you control what you build, you control what you invest in, you control how much you hire, what you pay. And so I think in these times where there is a lot of different elements that may influence who wins and loses in ways that you don't control, I think I would absolutely instead of trying to anticipate what you don't know is going to happen either macro or from outside sources, do focus on what you do control.
And it's an interesting time for you to think about investment, think about what you want to work a, whereas the last 20 months or so, 24 months, I think so much of what was being done was simply around how do you get your product out? How do you work through all these uncertainties going around the pandemic? Well, now how do you start to go back and say, "Let's assume there's going to be a recession. Let's assume there's going to be less consumer demand," what would you do now to continue to help position you for coming out of that? For the companies that have cash, the companies that have elements to be able to do that, it's going to be a great opportunity. For those that are struggling, they're going to have to be looking at how you probably very quickly reduce your expenses, which is why I think probably what you're seeing in some of the layoffs is that people are trying to get ahead of what could be a real more challenging scenario to reduce costs next year.
Vincent Yates (07:16):
Well, speaking of reducing costs, Jason, I feel like IT is always the first place to get hit. Maybe I'm wrong, but-
Jason Goth (07:23):
Certainly feels that way.
Cutting Costs During a Recession: Should Tech Projects be the First to Go?
Vincent Yates (07:26):
Look, we have spent the past... There's all these articles in HBR and other places talking about how COVID was this massive accelerator, this digital transformation accelerant, how this whole thing has been five-plus years. We have a lot of clients who are working on that right now. They're not done. And so my question to you is, as these executives now think about, "We have to cut costs from somewhere," IT's been the typical go-to. Is that even possible? If you're in the middle of one of these digital transformations moving from on-prem to cloud, can you just stop and save something, or have you committed in a way that is different than maybe in the past?
Jason Goth (08:02):
Well, I think you might have to prioritize. There were a lot of initiatives you had, you may not be able to do all of them, but to Kevin's point, I still think there is a great opportunity if you have the cash to go get a leg up on some of the competition for when ultimately we come out of this. I do think there are also ways to cut costs smartly, especially think about cloud for example. There are a lot of ways to reduce your costs there, maybe invest in some, whether it be data and archiving data you don't need or right-sizing applications just like you're right-sizing your staff or look at how to auto-scale things. There are a lot of things you can do to help reduce those costs, and maybe there's some shift of investment away from new product and new service into some of those, call them, maintenance activities or cost-reduction activities and to cut some of the fat around that people intentionally took on as they were in the pandemic trying to capture all the digital attention that they could.
People had took on some technical debt. That would be what we would say is you would essentially, like any other debt, you take out a loan against the future. Well, now it may be time to pay some of that debt back, go back and clean up some of that, cut some of that fat and that may divert some of the dollars from investment, but I would not recommend that people go to zero investment unless it was absolutely necessary. I think these are a good time for people to invest in things that may have a benefit coming out of the recession at some point.
Kevin Erickson (09:49):
Yeah, I think another thing may be interesting outside of just your infrastructure, your data, tech type stuff is really looking at your portfolio of products and looking where you think the market is for that, where you want to invest in, and if you have cash and you have means, I mean, it's going to be an opportunity potentially to do acquisition, be able to buy things that are distressed. There's a lot of elements like that. So getting ahead of that today to where you're able to start building those war chest for different elements of that is going to be really important.
I also think about real estate, which is again, not pure technology, but how technology enables different types of work, where that's done, types of places in the world. I mean, coming out of again the last 30 months, 24, 30 months, I mean being able to think about where that looks like is going to be done in many different ways in trying to spend some investment cycles, whether it be just normal annual planning going into next year or you're scenario planning around what you would or won't do in a recession. I'd be looking for different ways that you can be able to do that, and product companies, tech companies, we don't prune very well. I think it's an opportunity for you to really look at that portfolio and figure out how you'd want to do that.
Vincent Yates (10:56):
I think it's an interesting point about not pruning well. It seems to me, if we again go back to just the very onset of COVID, it was a very scary moment for a lot of businesses and the executive team in particular, I feel like they really took advantage of all of the low-hanging fruit. I mean, they offered people early retirement packages, a huge number of employees exited the workforce and have never returned since. They presumably cut real estate costs where they could, which they weren't even using spaces. Help me understand where you think those next layers of cutting, where they come from. Is it going through that same thing again or is it back to your point, Jason, that was two years ago though, and now we've been running as fast as we can maybe with scissors in some cases.
If you look at Peloton as an example there, they really thought that was a permanent change and they way over-invested capital investment. They're struggling to recover from that. Amazon, another example, had basically put call options on virtually every warehouse across the country. I have a friend who's in a real estate business and he said there weren't any available warehouses at all. And now in fact they've let all those go. Not only that, but even some of the corporate buildings they've put on hold. Six buildings recently they put on hold. The construction, they've just paused it. They own the building, they've been starting it, they've just paused it. So help me understand, do you think there's more to cutting to go? Is it worth going back? Do you have to go somewhere new in the business now?
Kevin Erickson (12:22):
Well, just to keep down the real estate side of that, I think there's a lot of folks that were locked in and they couldn't get out, and so what's the degree of that, what that plays out, what's the renewals, I think that that'll be something to go back and look at and potentially even just reducing your footprint in your current space, particularly from an office perspective based on where you want to do work, how that plays out. And my particular view is that you can be in-person, you can be remote, you can be hybrid, but you can't try to do all three, and so I think how different teams think through that, where do they use those different for competitive advantages for them, and I think particularly in technology, it's ripe for hybrid and potentially remote, but I think hybrid is my personal favorite because you still have a lot of cultural connection, but yet you still can reduce your space and allow people to have greater flexibility, but I do think there's probably some cost there.
And I think outside of tech, the whole supply chain associated with some of the companies, Amazon, Peloton you talked about, that's a whole other dynamic that still is really real, whether that be maybe not so much driven from COVID, but just general fear of different parts of the world, countries, how that works on, do you start bringing things back on shore? How do we work through that? We have still have shortages in a lot of different elements of the supply chain that are causing pain. Will that alleviate if there's less consumer demand, if there's less government stimulus in different areas to help support that? I would expect that to happen, but it's going to be interesting to see where to do that.
And I think Peloton is a cautionary tale and as somebody spends a lot of time on Peloton, it's interesting, I don't know if they're going to be around much longer, but it's just from them how they completely misinterpreted what was being driven by macro events as consumer demand, and I think it's going to be one of those companies we'll talk about in business school for the next 50 years around how they created a market and they lost it because they misunderstood what was really happening.
Vincent Yates (14:17):
Yeah, and they're not alone, by the way. Shopify had a similar experience where, again, if you look at the growth curve, they published this actually in their earnings, it was a really great chart where it shows their typical growth. You can see this very nice straight line kind of growth that they been experiencing and doing very well, COVID hit and that just accelerated. The difference though is that wasn't permanent. As soon as we've gone back to this from pure remote, if you will, to a more integrated society I guess is one way of putting it, it's really regressed back to the mean and back to basically where they would've been had COVID not happened. So it's difficult for sure. No doubt.
The other thing I was going to say real quick on the... The other thing I was going to say real quick on the point of real estate is Jack in the Box, for example, actually is looking to sell 250 Del Taco locations to franchisees. So they had both franchisees and corporate-owned, and their corporate strategy now is to effectively divest all of those for the sake I think of hedging that risk. And I'm curious, Jason, I know you have a lot of experience in that space. Is that a common strategy here, just finding other assets to divest, and is there anything in technology that we can divest to?
Jason Goth (15:23):
I think it's pretty common around some of the real estate with restaurants in particular or other businesses that have a big franchise model. I don't know that there's a lot you can divest from a technology. I mean, if it's a product that you choose to sunset, that's great, but most of the technology is somewhat critical to running the business and you can't get rid of your financial system, you can't get rid of your ERP, you can't get rid of your e-commerce platforms, and in fact, if you're moving into a era where you need to try to attract more customers, maybe there may even need to be some investment in the kind of MarTech space around how do we engage customers, get customers to come either onto the platform or into our retail locations or whatever.
So I'd maybe see a shift in investment around that. You mentioned supply chain earlier, Kevin. I think that's right. We do see a lot of people working in supply chain and looking really at the data and how do we get much more tight around that, less in the restaurant, less spoilage or in other industries, less inventory. You saw... Who was it that had all the inventory? I think it was-
Vincent Yates (16:38):
Yeah, just recently. Kohl's, was it?
Jason Goth (16:40):
Yeah, Kohl's had the massive inventory problem, and so-
Vincent Yates (16:44):
Well, that's interesting thing though. Real quick on that. Sorry, I didn't mean to interrupt you, but real quick on that point is that the solution? Because I guess in some sense, the idea of being this really lean just in time delivery supply chain that we've been working for the past call it 10, 20 years on, is what exacerbated a lot of the... I mean, that's the bullwhip effect. It exacerbated a lot of the challenges that we saw when we had the supply side recession because China shut down where we manufacture everything. Now, with the gas prices being so high, it's too expensive to manufacture a bunch of stuff that's very energy-intensive. If we didn't have that, if we actually had sort of buffers like we used to, inventories that we used to, a lot of that would've been smoothed back out. I'm just curious, how do people think about that, I guess, executives that you talk to think about that challenge?
Jason Goth (17:29):
Well, I don't think that there's a consensus on that. I mean, there is a big focus on diversity of supply chain to try to smooth that out, less so than building inventories because especially now, that has a big cost consideration, and so much more around diversity and can we continue to get the just in time delivery but spread that out across different suppliers so that we don't have the kind of disruptions? But I don't know, Kevin, what your thoughts are around that.
Kevin Erickson (17:58):
Actually, I think there's going to be different suppliers to look at. I think it's going to be interesting. My mind actually goes a little bit different. So at risk of not being invited back, I might take us a slightly different spot, which is I think about a couple things in your respective areas of discipline. So my mind goes to what are all the C-level positions that didn't exist in 2020, chief data officers, chief analytics, all those different elements that are associated with data? What is from a product perspective, from a tea shop, what do we build versus what do we buy, what do we integrate? Again, a lot more providers that are out there thinking through different vendor strategies who go to the consumer perspective and everything's a subscription model and how we play through that, and so these are all three or four different themes that are just different from where we were at a few years ago.
So if I'm going back to a technology-minded executive, whether it be data, infrastructure, analytics, there was a lot of projects as you said before, Vincent, around just how we got to survive this season. There's been a lot of investment made in I'd say ML/AI, different things like that, analytics. So those are elements that we don't quite know what really the outcome is. It's almost like early web technology. I don't know what the web is, but I need it. And I think it's going to be interesting around if we have, again, the recession, who will still be making those investments, who's going to pause some of that, who starts just simplifying what you go after and where you provide that?
And then last thing that's kind of on this random arc is that I think that who gets paid in the company's evolving too. We think about the idea of what we pay for security and privacy executives and teams and what that costs and what that means. So you're really looking and saying, "I think you're having to retool your teams to be able to support what you're doing around these different elements," and some of these are actually just cheaper in terms of the physical cost infrastructure, real estate, and it's more around, again, the continuation of growing into certain specialty knowledge skills. So I didn't answer your question at all, but gave a few other things maybe for us to consider.
Vincent Yates (20:04):
I think that's right. It's a really interesting point. I think data in particular I think has been really useful to the companies who have either been digital native or made some of that transition, because again, to your point, Jason, if I can see what my inventory is at this very second, it's a very different ball game than we were even five years ago. That's radically different, and if I can do better at forecasting an outlook in this environment, super hard to forecast because everything feels very novel, but to the extent that I can, I can do much better than I could before. So I think those are really good call-outs, for sure.
Kevin Erickson (20:34):
One thing, I don't know if this will take us anywhere, but it's interesting to me about the Jack in Box example around selling the stores back to their franchisees is, I'd be curious, my suspicion is they're keeping the real estate, but there's been quite a bit of private equity play in rollups of car washes, dental offices, things that own their buildings, and often what they're doing is they're buying them up and then they're leasing back out the property. Okay, Jason, you worked at a certain client that we used to joke all the time, that golden arches, it was a real estate firm that sold hamburgers, and I think that you're seeing that in other elements too around looking at different types of strategies, what are physical assets that they can potentially work through? And again, I don't know how that plays out from a pure technology play, but I think companies are going to be looking at different things to be able to make those investments in both in terms of strengthening their bottom line and their balance sheets and also just find ways to be more nimble.
Vincent Yates (21:28):
Yeah. No, absolutely. And I think this goes back to the point a little bit, if we just broaden that slightly, about real estate in this hybrid work environment or maybe it's pure remote. If you look at San Francisco commercial real estate for example, the price per square foot has tanked. I mean, there's so much up for lease right now and that's a huge cost saving for organizations to figure out how to make that work. I'm curious, is that one of the solutions that we see being accelerated? To your previous point, these are typically long-term contracts, you're kind of stuck with whatever you have, but moving forward as they come up for renewal, do we think that we have to plan for the possibility that the leadership team ultimately decides not to have all this space?
And then secondly, in the case of hybrid in particular, I don't know if you have any thoughts around how do you actually make that work in an effective way? Meaning specifically what technology, et cetera, but also how do you even plan for a square footage if people only show up a few days a week? Let's say everybody shows up, and I'll choose the Apple example. They show up two days or three days a week, specific days. Well, then you have to plan for peak capacity even though you're using it even less than you were before, and I don't know if you guys heard any ideas about how to solve for some of that or what technology element we have to integrate beyond what we already do today?
What Should Leaders Do About Their Office Space? Keep, Let Go, or Hybrid?
Kevin Erickson (22:44):
Yeah, we have a client that I would spend some time with who's in commercial real estate and what they were talking about was actually... So they were surprised about it was that they're seeing their clients keep the same amount of square footage, but actually change the configurations significantly to allow for that greater flexibility for people to come in, different elements, less dedicated space, less really even dedicated dropdown space, but more common areas. I mean, we've done that in the last two offices that we've built, right? We've increased our common space trying to encourage people to come in for the social interactions, the cultural moments, less about I need a place to work today. And how do you create that? I think we're going to see that, whether that is done through real estate that you own, office space you lease, whether it be stuff that you rent, there's different ways to go after it, but I do think you're going to see a reduction of that.
I think that companies are going to have to figure out what is their strategy to remote and hybrid, and where they're going to draw the line, where they're not. I think you're going to see companies that are in the exact same industry, one will choose to take one stance, one's going to take it to another. I think the key is for companies to choose what you want to do and then how do you engage your workforce and how do you keep productivity. I think that the idea of the hour-plus commute in a lot of our major markets is going to be a really hard thing to convince people to continue to do.
Similarly, having an always-on environment that you see from a remote worker is also going to be something that we have to continue to work through. So I think it's going to be really important for companies and teams to have a determined approach, and then I think if I were advising a company, like most things, I would say play a little bit of a portfolio theory and you might have several different ways that you're doing that. So you can try to have an experience where an employee that can choose what works best for them and they can work in a different environment versus leaving.
Vincent Yates (24:31):
Yeah. Jason, I'm curious. I think the counterpoint that I often hear with that idea in particular is like, "Look, we've seen that movie before." I mean, IBM did this thing, I don't know when it was, 2000, something like that. Yahoo did this thing and then Marissa came in and changed it. Effectively, they all went back. They said, "No, that didn't work. You all have to come back into the office," and there was a big shift there. Is the technology fundamentally different now? Is the work different? What's your perspective on is this actually different or is it just the same and we're going to end up in the same place in another year or two?
Jason Goth (25:03):
Well, I don't think it's different. If you look at the work Microsoft just published last year around they looked at something like 60,000 people and how their productivity worked. I think the conclusion they came to was that productivity was fine for all work that wasn't creative development of new things. For creative development of new things, that really suffered, and I think a lot of what we do from a technology perspective is creative development of new things. If it's new product development, how do we solve new problems? And those teams tend to benefit greatly from collaboration in person. There's been some studies that say it doesn't matter, but I think the largest ones, Microsoft and others, tend to include that.
But I do think the hybrid is a nice balance for that, so you're here three days a week or whatever and to get that collaboration and then you can have some time to A, put your headphones on and hammer out those things that you talked about while you were collaborating and not have to commute and be home for the sprinkler guy to come over and fix the sprinklers, which I did this morning before coming in. And so I do think the hybrid, to me, is somewhat... At least hybrid, I'll say, is necessary for those teams that are really creating something new. That's my opinion, but again, we're opinionated.
Kevin Erickson (26:37):
Yeah. To me, I think that there is a change between 20 years ago and now, and I think I agree, Jason, it's the hybrid and I think it's the technology that supports that. Before it was binary, you're in the office or you're not. You're located here, you're not, and I think now what we're saying is that you can do both, and I do think that my personal preference for a version of a hybrid team is that you are still geographically located together, so you can get together relatively easy and you do it at set times and you use those creative moments to be able to work through that, and I think that the technology that was greatly advanced over the last couple years makes it easier for you to integrate in and-
Jason Goth (27:15):
Yeah, it's mostly bandwidth I'd say. I actually worked one of those companies back earlier in the '90s, and it was an ISDN modem for those that remember what that was. It was 64k.
Vincent Yates (27:29):
Is this like a dinosaur thing?
Jason Goth (27:31):
Kevin Erickson (27:31):
It was a Jason thing actually. That's what he learned in his first 20 years.
Jason Goth (27:37):
64k, that used to be a lot.
Kevin Erickson (27:41):
Would it get me to the moon or not?
Jason Goth (27:42):
It was up from 9.6 when I first started doing this. But I think today broadband is fairly ubiquitous, high bandwidth, and so people can do conference calls, Teams or Zoom or whatever it may be, and so that does I think allow for people to be more hybrid and remote. I think the culture aspect obviously for the hybrid, but I do think there are certain moments, and my example of this is if anyone ever has ever tried to do a shared whiteboard on the tool, that's where I think some of that collaboration is useful in person, but again, there are times where you just got to sit down and hammer something out and I think those are fine to do remote.
So the hybrid to me seems like a reasonable way to address that, and I think with that, back to your question about how do you handle the real estate aspect of that, do you have to build the church for Sunday morning, or not? I don't know. I think there may be some ways to space things out where it's a lower demand or schedule things out so that it's lower demand, and maybe reconfigure things a little bit differently. We all have an office with tables and all that, maybe that all goes away.
Kevin Erickson (29:13):
That's good. Well, I'm going to claim for my teams, Jason, that they're going to be in on Tuesday, Wednesday, Thursday. You can have Monday and Friday.
Jason Goth (29:18):
Yeah, that's right.
Kevin Erickson (29:20):
Yeah, the one thing I'll add to this is not about the technology. I think that this also reflects just the changing workforce. You think about the classic kind of stereotype of gig economy. I think people want to work when they want to work and how they work through that, and I think the idea of coming back in, working the traditional eight to five, what that may mean, I think that one of the elements of hybrid is it allows you to have greater flexibility to work when you want to, how you want to. It was just easier to do that than before. And I don't know if that's that's going to change, it's going to be an important thing to continue.
Vincent Yates (29:54):
I think it's a good point. Yeah, the Microsoft research, it was published in Nature, we can put it in the show notes. It was a really interesting paper. It had a few things that I do think are worth pointing out, which is, again, looking at pre/post-COVID, it was not a true A/B task, but it was a reasonable proxy, I think. That group did a great job, I think. They showed though that there were a few trends.
One is that the amount of communication actually increased between people. The catch is that it was only between people who already knew each other. So people who already interacted, now they interact more often. The means of that communication was a lot more consistent, but at shorter form. So less long form stuff, a lot more messages, Teams messages, whatever. And that to your point, Jason, in cases where there was some reconciling of different opinions, those things typically suffered, and so people became more narrowly focused, which we see on social media all the time, and just regular life, if you will. People find echo chambers, people who like them, they become less exposed to divergent opinions and there's no good form in which to sort of work through those divergent opinions, which I do think is a problem.
Jason Goth (31:03):
You're not going to schedule a conference call with someone you totally disagree with. That's why I never schedule one with Kevin. Kidding. I'm kidding.
Vincent Yates (31:13):
Well, and I think the other half of that though is even right here where we have microphones and we can talk over each other and both will show up, Teams and Zoom didn't have those features early on. Now, they're trying to integrate some of that, now you'll see some of that, but it's just difficult. So it's really hard to have those more dynamic conversations and the body language, et cetera. To your point though, I think bandwidth is different. So I remember early COVID, I had whatever decent speed internet, 100 or something megabits in my house, and when I was home and my daughter was home and we're both on Zoom calls at the same time, it was a disaster. The little ones are streaming who knows what, Cocomelon or something, I don't know, on Netflix, and nothing ever worked. And so the first thing we do is upgrade to gigabit. So now we have that technology.
I've worked out camera and lighting and microphones and we've worked out a lot of that, so it is different, but I do think that we're still have to solve for how do we actually have these really deep, intellectually challenging, stimulating conversations when people don't agree and they need to work out on a whiteboard, whatever. We still got to visit clients now, and there's a good reason for that. I think that some of those competitions are really important. Now, to your point though, Kevin, me focusing on my laptop, sharing up my screen, coding something, I don't necessarily need to be around other people for that. I might like it and that's fine and that's great and you can come do that, you can do the Starbucks or you can to the office, doesn't matter, but that would be important.
I think the challenge though is back to some of the stuff I opened with, even August 2022 from, this is in BLS from the government, the number of job openings had decreased to 10 million. So we've removed about a million job openings, but the number of unemployed effectively was the same. And so we still have a huge disparity between the people. It's basically two jobs for every person that's unemployed currently, and that leads to a really tight labor market. And so now if I'm a business leader and I'm thinking, "Geez, I hear you. I need to figure out how to control my costs," labor is oftentimes one of the highest costs you have.
These people are quitting in droves. 4.2 million quits in August, probably to take a job who pays more money, right? How do I balance that? Where do I differentiate? And I think some companies have used this topic as a means of differentiation. I don't know what's going to play out long-term. Maybe that ends up being a terrible disaster because they don't know anything creative, to your point, Jason, or maybe they figure out how to solve it. I'm not sure, but it's definitely a consideration that I would wrestle with personally.
Kevin Erickson (33:38):
Yeah, I think another thing that I think is interesting around is really the transparency in salaries, which has also been a really recent trend. So now everyone knows what you make or you're willing to share what you make, and so you've got that pressure because I think one of the first things I think you start to see is I think you'll start to pay for your stars, and I think that that's where a lot of what's going to end up happening is because I do think for you all to get the talent that you need, you're going to have to continue to pay probably more than you're comfortable for it, even with the reduction that you're seeing in the technology space, and so how companies account for that, how they work through that, how do you just somewhat bite the bullet of it's cost me what to pay for this.
Then I think what's going to be interesting from the overall employee experience side is that making sure you're not in the bottom 20% is going to increasingly be even more of an important thing than what it used to be because of just the disparity of cost structure at that, and I don't want to ever advise our clients or for our own company to have people live in fear, but it's just different. It's rising. I don't think we're going to be able to... I don't think we'll be able to pass on the increase in prices. Inflation's up 8.5%, salaries are still up, we can't find people. There's some point where our clients are like, "That's your problem, it's not my problem."
Vincent Yates (34:52):
Yeah, I think it's right and it's a tricky moment, which is you kind of have to make a bet and I think that's the scary part for executives, and it's funny because as I talk to a lot of people at different companies, different industries, different geographies, they all say something to the effect of, "Yeah, I think the economy's going to be rough." Maybe they don't use the word recession, maybe they do. They all say something like, "We're going to have to tighten our belt a bit. We're going to have to really put our head down and nose to the grindstone if you will, but not me. My company's actually okay. We are personally doing okay and it's everybody else."
It's a bit like when you ask people how are you as a driver and the average person says, "They're above average." It's one of those situations. I think that's starting to change. I've seen that sentiment personally start changing over the past few weeks and now really the question becomes what do I do about it? And I think that to your point, ultimately I think it'll be a very important strategic decision. Do you go ahead and lean into that and hire the best people, or not?
Jason Goth (35:45):
Yeah, I think that's an important decision. I think both of these, people costs and real estate costs, but I want to go back to something you mentioned earlier, if I can, Kevin, and that's really around looking at the portfolio, the product portfolio, and what advice would you have there around focusing on core products? Is it time invest in new... You mentioned maybe acquiring things that maybe you can get at a discount right now with the way things are, but what are your other thoughts around that?
Advice for Your Product Portfolios
Kevin Erickson (36:15):
Well, in the classic B school answer, it depends, right? It depends on where the company is, what you look at it. I think now is the time though when you have a little bit of slow down because I think most companies are either slowing down investment, a little bit uncertain what to need to do. It's a great opportunity to actually ask that question, Jason, and to reevaluate what is, what is tangential. For things that are core, what do you want to do and how do you want to develop and maintain that internally? Things that you can get elsewhere, we didn't explore deep on the pruning, but I think really it's another area of both everything from product to technology to areas. You can all do that.
And it's an interesting question, Vincent, or statement around how much of that was already done and how much is left. I'm thinking there's probably some companies, maybe the companies that are retail, main street, those elements that probably did a lot of that. My suspicion is a lot of the knowledge working technology companies, they didn't do that because they didn't have to, because for them they're going from March 13th to March 14th was really nothing. It was just that you just kept on moving, you just shifted where your workforce was, and so I think there should be a different set of companies that are going to have to go back and through that, but I look at this as really, well, business case 101, where do you have market share? Where are you going to grow? Where do you think you can get that? How do you build or acquire that?
Yeah, I think it's understanding what's core, what's tangential, and again, I don't have, here's your framework. You can hire a firm called Credera to help you with that if you want, but I think it's going to be somewhat unique to every individual element of that, but my hypothesis is that companies didn't have time to do it or they didn't make the time to do it, and I think that one thing that's going to be interesting now is that you should have more ability to do that. And then when you look about what you divest, what you acquire across a different space, I mean, I think it becomes a bit of a buyer's market and I think everything is... You've had this interesting scenario where the cost to capital has been dirt cheap for so long. Well, so cost of capital ain't cheap anymore. However, there is going to be more things available and there's a tremendous amount of private money that is available that's going to have to have a place to deploy.
And so I think depending where you're at your life cycle and a technology firm, you may find that you're going to be seeking some money and some investors where they're going to have to play. If you're more a mature company, it's probably going to be a little bit more like where do you want to actually have your core elements of that. So it's not a one size fits all, but I mean, I guess my advice to our listeners would be to make sure you're intentionally thinking about that differently, thinking about what you want to do, less reactionary because again, I think most clients, most customers have been just really reactionary. It's going to be easy to be reactionary to fear of recession or unknown as well, and I think this is where you need to be steady, steer the course, think about your core business, work through that, understand where you should make investments in debt and where should you be making some investments in future growth where you think the puck's going to be.
Vincent Yates (39:20):
Yeah, it's a really interesting point. I think both for public markets and private markets, I think this is true. There's a lot of talk these days in Silicon Valley for startups around the amount of dry powders, it's called, that sits there, which is this money that limited partners have committed to a venture capital to go deploy for them and they have yet to deploy it. So it's sitting in the bank, it has to be deployed at some point, and it's something like $290 billion of committed capital just sitting there in somebody's bank account just waiting, and yet in 2022 you're looking at VC funding down over 50%. So they just have been very reluctant at these previous prices and apparently for good reason because you're seeing what happened. Tesla's down, what, 60%. Microsoft is down, Apple is down. Everybody's down a huge amount in this market. True on the private side too, valuations are way down.
Two things come out of that from my perspective. The first is, and it's good news back to the labor point, as we talked about, a huge number of people have been laid off now from some of the best companies in the world, whether it be Tesla or Apple or Peloton or wherever. A huge number of people have been laid off. Those people are now available to go to the market and actually go get a new job somewhere else, meaning that where you couldn't get that caliber of person historically, you actually can get them now and that could be really powerful. The second thing is, to your point, capital was nominally free. I mean, we were pumping so much money both in the private and public markets for the past decade, ever since the Great Financial Crisis, we've just been dumping it in, and that's led to a place where a lot of people over-extended, some people during COVID really took advantage and recapitalized and refunded all their debts, et cetera, and now are sitting on a decent war trust.
For those who weren't able to do that, for whatever reason, who have burned through or didn't have enough capital, they now are in dire straits because to go recapitalize at these rates is very difficult, especially staring on the barrel of what could be a downturn, and so again, you end up with a bunch of tech and acquisitions potentially, or even expansions theoretically, where that executive team now gets mixed up and you're going to have redundancy inevitably, and then really good people who got acquired are not going to be on the market, and so it actually is... [inaudible 00:41:32] just published a paper recently about how these downturns are the best moments historically to build really transformational companies, and if you look at the ones that were built, whether it be Facebook or Twitter or even Yammer where I was, it was a great company, Jason, where I was previously, they were all built basically in these moments when the economy was really rocky, really rough because you would actually get talent and talent is what builds great products.
Kevin Erickson (41:58):
Yeah, those are really good statements and thinking, Vincent. I think one thing that's different and interesting to me about the last two years is that I think the people that left the marketplace were folks that were on the margin, either ready to retire, took a early package, someone who maybe didn't want to be in the workforce. So to your point, the folks that are being laid off now are going to need jobs, which is going to create a different opportunity. Yeah, it's scary as a company and as individuals to go into downturns, into recession, into uncertainty, but this is where as leaders too you have to be confident what you're doing, work through with the decision you have, and as you said, there's a great opportunity for people to grow, and whether that be finding investment.
You may find that some of the currency today is going to be not in actually investment dollars, it's going to be in partnerships, it's going to be making sweetheart deals, it's going to be trading technology product of those different elements of that to be able to stay afloat to work through that, so it is a technology executive and maybe a very different way that you approach to not only acquiring talent, customers, services, which I think is also fun, that it gives more options to you than just simply acquiring something from an acquisition type cost or a subscription type cost.
Vincent Yates (43:11):
Jason, I know you have thoughts on quiet quitting in particular. Last topic I want to bring up on this issue here. My question to you though is do you think... For listeners who don't know quiet quitting, it's this idea that... The most generous interpretation would be something like people really want work-life balance and they're now being able to actually get that from their employers, whether the employers like it or not, they're basically getting it. The question now though is, look, if you're actually going to do layoffs, if you now are worried about being in the top or the bottom 10 or 20%, whatever that happens to be for your organization, does that change the mentality from your perspective, Jason, on what's going to happen in corporate America? Do we go back to this '80s style, I don't know, boiler room, or do you think that this cultural phenomena with the younger generation coming and being in the trenches, if you will, will resist?
Will the Recession Prevent Quiet Quitting?
Jason Goth (44:03):
I think in the large part it depends on how bad it gets. If it's fairly mild, I don't think it will have that much impact on the cultural norms, but if it does turn into 2008, 2000, 2008, those type of things where there are a lot of people available, I do think you'll see some change in the behavior, and I think that's somewhat just human nature.
Kevin Erickson (44:34):
Yeah, I think one of the things that's really interesting around this go around is going to be do you expect to get propped up? So 2002, 2008, even in the 2002, the difference between when the original tech bubble burst and what was left standing, then you had the financial in 2008, we propped the banks up. COVID hits, I mean, people stepped in, government stepped in, different elements stepped in. And so I think we have at least a generation or a half-generation of our workforce that's never seen a downturn, and the one they've seen, they were made whole, and so I think it's going to be really interesting to see what happens if there isn't those supports, that you actually see people in real need. That isn't in a traditional kind of, let's say, kind of knowledge worker.
I mean, the needs that came out of COVID were in much more of hourly-type work environments. So I'm intrigued by where this goes and what that looks like and then what impact it has to the culture. Part of me thinks that could be good, some of it thinks that my fear is that we actually... And trying to evaluate how do you run a business is like, "Well, what happens if it doesn't actually get to where it needs to naturally go to hit the bottom? And we keep on propping it up?" Well, how do you make decisions within that when you're playing in a world that's really made... it's almost make belief?
Vincent Yates (45:58):
Yeah. I had never actually contemplated that before. It's a really interesting insight, which is how resilient and stubborn in some sense, is this new generation of workers who have always been bailed out conceptually and has always been made whole in an environment where that may not be possible? I mean, I think it's as we saw with the prime minister just today, it's political suicide to try and that argument right at this moment. How long that persists, I don't know, and I think in the US in particular, it'll be interesting because we have of course midterms coming up and the way that a lot of this political stuff works, if it ends up being split, I think that we get in a place where there are strong incentives for the legislators not to do anything, to leave the economy in bad conditions so that the president potentially flips. So we'll see. I don't know that, that could actually play out that way. We'll see.
Last thing I was going to say then, as we think about wrapping up here, there's a lot of uncertainty. We've covered a lot of it. We've covered some of the strategies on how you should be thinking about it from an executive standpoint. We've talked about the idea that you just got to keep going on digital transformation. We've started that, that ship has sailed. Maybe there are ways you can prioritize it differently. We've also talked about the idea that perhaps there's some real estate efficiencies that you can get out of that and what that looks like.
Making a bet strategically on what your workforce looks like, whether it be in-person, entirely remote or hybrid, and the implication there, that seems like it's going to be ultimately a corporate strategy and one will probably win ultimately. I don't know which one it's going to be, but be thoughtful about that being strategic. And then the argument around talent acquisition and how you're going to control costs while the labor's so expensive while also trying to get some of this new labor that might be popping up. Anything else that comes to mind for you all as your coaching executives across the industries? How do they get prepared for this kind of volatility? What should they do? What else should they be concerned with?
Kevin Erickson (47:56):
Well, one thing, it's related to some of the themes and it's kind of goes back to the basics, but at the end of the day, I think it's all about people, and so how do you invest in the right team? How do you build that? How do you work through that? How do you find, use your word, Vincent, resiliency? How do you have that in your management teams? How do you have that through? I think it's going to be a time for executives to invest in that, and invest in that is... And really kind of building around that. So the implication of that is that you jettison people out, that's the ugly part of that, but I think that that's going to be really important.
So it's just some of those building the foundation for what is going to come and it's going to help you weather through whatever does come is what I'd be focusing on. And then it's probably being a bit more measured at the pace that you grow and work through that too. So I would advise people to continue to be moving forward, continue to be making investments, but you're probably having a little bit more controls around how far you go, what that looks like to me. Don't live in a paralysis of fear so you don't make any decisions, but also do it a bit more controlled measure.
Vincent Yates (49:07):
Jason Goth (49:07):
You think there's a big leadership aspect? I mean, you mentioned those companies that did well in previous downturns by investing. I think a lot of that is leadership, and really having resilient leadership as well to be able to have the stubbornness and the commitment to make those investments when things don't look bleak, but I also agree, Kevin, around maybe some of those investments aren't all moonshots there. Smaller projects, shorter ROI, and maybe more measured from a data perspective around making sure that we are seeing the outcome we have, and if not, let's kill it and pivot towards something else. And so I think there's some of that kind of discipline that you can institute from a measurement in short turnaround as opposed to these big moonshot projects.
Vincent Yates (50:00):
That's really good. Actually, I had one more question that came to me as I was listening to you guys. It's a provocative one, it's not really fair, so I'm going to ask it. That's what I love doing. That is, look, if you only choose one thing in a moment like this, do you choose to focus on growing your way out or cutting your way to survive?
Growing Out of the Recession or Cutting Back to Survive?
Kevin Erickson (50:19):
Well, I think it depends on your style. For me, I'd absolutely grow my way out. I mean, I've built my career on helping companies grow, helping our company grow. That's what gets excited, how you do that, and so I think you should always be doing that and doing that through scalable and sustainable ways. So I would say grow. Look for ways you can upgrade your talent, upgrade your clients. Find creative ways to be able to make it work right now, find ways to defer cost, defer payment, different things like that. There's a lot of different elements that you can do with that. So that's what I'd be recommending people do.
Jason Goth (50:51):
So I used to work for Monte Ford when he was the CIO of American Airlines, and he used to say, "We can't cut our way to profitability and we have to grow." So I'd agree 100% with Kevin. You got to figure out what you're going to invest in, have that kind of commitment to make those investment stubbornness to get through them and build your business to be ready to come out of this thing.
Vincent Yates (51:19):
Yeah. No, I'm with you guys, by the way. Just for the sake of transparency, I'm with you. I grew up in Silicon Valley and that was always the idea is look, you leave it all on the table and hopefully it works out. It may not, but hopefully it does, and if it does, it's a lot more fun. Even if it doesn't, well, it was a good run while you had it, right? And so you got to leave it all out there in the field. It's not a way of just hiding and surviving until you get there because you'll be so weak and sort of atrophied by the time you're ready to actually grow again, it'll be too late. So I'm with you.
Well, thanks, guys, for joining me today. It was super fun. Really interesting. Hopefully our listeners enjoyed this new version of our podcast, Technology Tangents.
For those of you who would like to learn more, please visit the insights page at credera.com. Thanks for listening and I hope you'll join us again. Thank you both.
Kevin Erickson (52:02):
- Technology Consulting
- People And Culture
- Credera Culture
- Talent And Culture
- Culture Development
- Company Culture