Investing in technology during downturns

On a recent cross-country flight, I sat next to a gentleman employed by a large technology consulting firm that assists Fortune 100 companies in implementing multimillion-dollar systems. Pointing to the dire headlines splashed across the front page of the newspaper he was holding, I asked him if the economy's troubles were negatively affecting his business. He said that tech consulting actually thrives in a downturn. At first, that may sound counterintuitive. Why would global corporations be making big investments in technology at a time like this? Shouldn't new tech initiatives and expensive consultants be the first expenses cut from the budget when trimming costs? No. Because a tech rollout often carries a single, large price tag, people perceive it as costing more than the problems it solves — the sum of thousands of small inefficiencies, lost hours spent on manual work, and duplicated efforts. Office inefficiency doesn't come with a clear price tag, which is why it is easier to pay an invoice you never see. The best-run companies choose to invest in technology during downturns, because new systems can help them accomplish more with their current head count. The cost of hiring employees can be difficult to predict and will grow over time, particularly when you include the cost of benefits, office space and training to their base salary. By contrast, the cost of procuring, implementing and maintaining technology is more easily determined, and costs are far more predictable. While the logic behind putting money into technology during a downturn may be relatively easy to understand, it may be less clear as to why large companies choose to rely so heavily on consulting firms, especially because the companies have their own sizable and talented information technology staffs. But the use of consultants also can be attributed to the flagging economy. When companies are flush with cash and the economy is going strong, making large purchases and performing implementations without outside assistance is acceptable, as there is more of a margin for error. When each dollar needs to stretch a bit further, corporations are more inclined to bring in consultants, with the belief that they can deliver a more effective solution for a lower total price. Ultimately, the cost of hired expertise remains constant or decreases when the economy slows, but the value of that expertise in-creases, as it is more likely than ever to have a positive effect on the business. Big corporations seem to have determined that this improves their bottom lines when the economy is struggling. But does the same strategy work for independent registered investment advisers, and financial advisers and planners? Scalability is arguably the most significant obstacle that advisers face. For many advisory firms, finding clients can be less of a problem than providing a high level of service to that growing client base. Too often, the barriers to providing quality service arise from outdated, inefficient technology. Advisers need to assess the state of their practice. Changes in the economy often demand changes in the structure of a business. Technology and outsourcing can simplify these shifts in staff responsibilities and even cause a reduction in the number of employees by taking over tasks that had previously been performed manually. Advisers should ask themselves whether they would prefer to have a staff member performing administrative tasks or assisting with marketing. If the change in the economic climate means that firms are working harder to generate business, reassigning an employee to assist with marketing efforts may be a smart move. More-aggressive outsourcing may even free up enough space and resources for the addition of a new lead referral source such as a certified public accountant. In order to survive in a tight market, advisers must be efficient. Just like Fortune 100 companies, advisers during the downturn should tap into improved technology — and the knowledge of skilled tech consultants — in order to trim fat, run more smoothly and strengthen their business. Eric Clarke is the president and chief executive of Orion Advisor Services LLC, an Omaha, Neb.-based company that offers portfolio management and back-office solutions for advisers and broker-dealers.