Impact of Automation in a Recession

Customer retention, revenue growth, and efficiency are critical during hard economic times. Organizations looking to streamline their operations, reduce costs, and improve efficiency are increasingly turning to automation in a recession. With the COVID-19 pandemic and resulting economic downturn, automation has taken on even greater importance as businesses look for ways to weather the storm and emerge stronger on the other side. It’s worth taking a closer look at how Intelligent Automation can help recession-proof a business through digital workers.

These are interesting times. While the economy is displaying several indications of a recession, the labor market remains tight (despite the Federal Reserve’s efforts ). Job openings remained unchanged at the end of 2022 at a near-record of 10.5 million. This is unusual but also exacerbates the challenge for companies as the price of labor continues to rise. Maintaining existing talent is important as the rate of employees quitting increased at the end of last year, driving the cost of acquiring new talent higher, when the talent is even available.  

Digital Workers in a Recession 

Automation allows an organization to trade small amounts of capital for labor – saving labor costs in the short and long term. This is done using digital workers. A survey of 3,000 global executives found that 20% are engaged in layoffs, 20% will engage in layoffs, and 25% have imposed hiring freezes. While 33% responded that they are building cash reserves, 36% reported engaging in expense-reduction programs. Laying off employees can hurt you in the long run if they leave behind undone processes or a hampered ability to deliver for customers. Deploying digital workers is a force multiplier making your existing team more effective while also cutting costs.  

A digital worker, also called a robot or “bot”, is a piece of software that layers on top of existing systems or between them to perform the rote, repetitive, rules-based processes that most workers currently dread. Digital workers are built using Robotic Process Automation (RPA) but can also utilize tools like Machine Learning, Natural Language Processing, or Artificial Intelligence. Companies deploying digital workers have seen an increase in savings to 24%, up from 19% in 2019 (McKinsey Report 2022). A large contributor to the increase in savings is the rising cost of labor.   

Intelligent Automation & Robotic Process Automation (RPA) 

It’s important to understand the difference between intelligent automation and RPA. Intelligent automation combines RPA with artificial intelligence (AI) and machine learning (ML) to handle more complex tasks and make decisions. RPA, on the other hand, is a technology that allows organizations to automate repetitive, high-volume tasks by “teaching” a computer to mimic the actions of a human worker. Both intelligent automation and RPA can be valuable tools for organizations looking to reduce costs and improve efficiency during a recession. 

Focus on Revenue-Generating Activities 

One of the main benefits of automation is its ability to reduce labor costs. By automating repetitive tasks, organizations can free up human workers to focus on more value-added activities, such as customer service and revenue-generating activities. This can be especially important during a recession, when organizations may be looking for ways to cut costs and maintain profitability. Automation in a recession can also improve efficiency and productivity, which can help organizations stay competitive during a downturn. 

Organizations should avoid adding operational costs that don’t contribute to revenue generation. Automation allows businesses to scale without needing to hire additional employees.  An expanding staffing company had this very challenge. For every ten million dollars of revenue, they had to hire an additional team to manage the accounts – this for a company that was doubling its revenue every year. While the growth was great, the profit margin wasn’t improving. Automation allowed them to scale without needing to hire additional teams. That efficiency led to a much higher profit margin.  

Customer Retention & Satisfaction in a Recession 

Recessions bring reassessment to organizations. Existing platforms, processes, and partnerships are all held up for scrutiny. Are they still serving the organization as they should? What needs to change? Who needs to change? Your clients are asking these same questions. They are looking for partners that can deliver the same value at fewer costs or greater value at the same costs. They want to see organizations that are adapting as they adapt and earning their business.   

Customer retention is essential during a recession for several reasons:  

  1. Reduced Customer Acquisition Costs: It is generally more expensive to acquire new customers than it is to retain existing ones. During a recession, this is especially true when the cost of a new client can skyrocket.
  2. Increased Revenue: Loyal customers make repeat purchases and tend to spend more on each subsequent purchase. Trust is built over time and should not be risked to make a single quarter’s numbers look good.
  3. Brand Reputation: Maintaining a strong customer base during a recession preserves and grows your brand. In uncertain times recommendations and word of mouth become even more important to both buyers and businesses.
  4. Competitive Advantage: With fewer businesses operating, those that retain their customer base are better positioned to pick up competitors’ losses.  

Automation improves customer satisfaction. By automating tasks such as order processing and customer service inquiries, organizations can provide a faster and more consistent customer experience. For example, 93% of consumers say that the quality of their billing experience is an important factor in whether they’ll return to a provider. (Cedar Healthcare Study 2021). The quickest way to lose a customer is to mess with their bottom line or financial health. Causing any stress in this area is a recipe for loss. Ensuring a frictionless customer experience is especially important during a recession when customer retention is crucial. Automation in a recession can enable both self-service and speed requests routed through traditional customer support.  

Consider the DMV, long held in contempt for its poor customer service and odious line times. Here in Virginia, the DMV adopted self-serve options via their website that are automated on the backend. They also adopted a scheduling and appointment system that allows users to show up just in time and leave just as quickly. It has completely changed the experience of drivers in Virginia. Associations, credit unions, and healthcare providers that engage in automation see similar results and more satisfied customers.  

Impact of Automation

Automation makes organizations more agile and adaptable. The adoption of an automation mindset combined with deployed capabilities empowers organizations to pivot to new products, services, or markets more quickly, which can be useful in a changing economic environment. Being able to meet the changing needs of clients with new lines of business is a great way to increase revenue.   

Of course, it’s important for organizations to carefully consider the potential impact of automation on their workforce. While automation can free up human workers to focus on more value-added activities, it can cause anxiety among employees. Good automation focuses on people and making their work more meaningful. Good automation takes the robots out of humans and allows them to focus on the tasks that only humans can do. It’s important for organizations to have a clear plan in place for training and supporting employees who may be affected by automation and to consider ways to upskill and retrain workers to take advantage of new opportunities created by automation. 

A word of warning. Many organizations jumped on the automation bandwagon but did so without engaging in best practices. This often led to poor outcomes and defunct automation programs. While the temptation may be to swear off automation, it is important to remember two things. Technology is evolving quickly. A project that five years ago took ten months and was 60% accurate/effective now takes six weeks and is 99% accurate/effective. What failed a few years ago might be “easy” now. Two, automation isn’t going anywhere. 57% of organizations are in the piloting stage of automation. If you aren’t, your competitors are.  

Getting Started with Automation 

An effective way to start the automation journey is to find an automation partner. Good partners will help you identify high-ROI use cases that fit into your strategic goals. They will ensure that best practices are followed and documentation is provided, future-proofing your automation program. Good automation remains in use because it becomes essential for the organization. Think of a household automation like the dryer or dishwasher – you can live without them, but it would make your household far less efficient. Top-down initiatives often settle on pet projects that don’t have the impact desired. Be sure to involve your lowest-level subject matter experts in the discovery phase. Your C-suite will know the strategy for the next 12 to 18 months. Your SMEs will know what processes really need automation. Your automation partner will help select the process candidates that fit into your organization’s strategy.  

Automation, particularly intelligent automation and RPA, can be valuable tools for organizations looking to weather a recession and emerge stronger on the other side. By reducing labor costs, increasing efficiency and productivity, and improving customer satisfaction, automation can help organizations maintain profitability and stay competitive during a downturn. Firms that engage in automation are poised to not only survive uncertainty but thrive in it.