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How AI Can Recession-proof Your Business

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By: Mridula Saini, Chief Revenue Officer at IKASI |

Posted on April 18, 2024

While talk of an imminent recession isn't at the fever pitch it was a year ago, that doesn't mean we're out of the woods yet. It's yet to be determined if we've actually achieved the fabled "soft landing" that the Fed has been aiming for, and businesses remain wary as they contemplate the future.

This is because many businesses are already facing serious challenges—even in the absence of a full-blown recession. Inflation continues to wreak havoc on consumers, but it's also hitting businesses hard, especially small businesses which have a lot less leverage when it comes to buying power.

In response to higher costs, most have been raising prices on products and services and doing what they can to trim expenses. Limited access to capital and rising interest rates are further tightening the screws, adding to the existing challenges such as retaining top talent, filling key positions, and managing supply chain disruptions.

When times are tough, businesses usually resort to cutting their spending and holding onto their capital. All things considered, the "batten down the hatches in a storm" approach is not a bad move. But the consequences of this sort of retrenchment can present some significant issues. For instance, operations lose access to the resources they need to carry out their essential functions while preparing for the future (i.e., capital investment) typically goes by the board. Prospects for growth diminish sharply, as the business focuses on surviving the downturn so that it can live to fight another day.

The Promise of Automation

Thanks to the advent of artificial intelligence (AI), businesses now have another option. They can now leverage the power of automation and are able to plug gaps and make up the shortfalls that result when spending has to be pared back. After all, no matter how creative and dynamic a business is, or claims to be, a lot of what it does every day is mind-numbingly routine. Machines and systems need to be run. Operations need to be monitored. Records need to be updated. Numbers need to be tallied and reconciled. Communications are both sent and received.

This is where AI truly shines because it's able to deliver efficiencies so remarkable and dramatic that businesses gain the room they need to cut spending and employee numbers as part of their struggle for survival. Machine learning algorithms and neural networks can now process truly staggering amounts of data, which enables them to identify patterns and make highly accurate predictions. As a result, businesses can exploit these powerful capabilities to streamline operations and boost efficiency and productivity at the same time that they slash expenditures—a result that would have seemed counter-intuitive until quite recently.

Put simply, AI lets businesses do more with less, both in terms of money and people. Generally, this can't be great news for workers, but for businesses staring down the barrel of potential insolvency, AI's ability to handle many of the basic requirements of operating a business means that owners can conserve their resources for the bills and the investments they simply have to make. It gives them a degree of economic flexibility that they've never had until now.

Getting On Board

While many small business owners remain perplexed by AI and what the technology means for their business going forward, a report in late 2023 from the Small Business and Entrepreneurship Council (SBEC) indicated that most small businesses in the United States are using at least some AI tools to automate functions and save money.

The study found that the efficiency and productivity gains were so impressive that these businesses collectively saved hundreds of billions of dollars annually. Equally important, it found just under half of small businesses in the US have experimented with AI at some point in the past 12 months, while roughly one-third have been using the technology for more than a year.

What this means is that small businesses have quickly grasped what AI can do for them in terms of maximizing profits through increased efficiency, productivity, and competitiveness. The fact that they're turning to AI during a period when questions are swirling about the future direction of the economy doesn't seem accidental.

More than nine out of 10 small business owners surveyed for the SBEC report agree with the proposition that AI tools deliver big. This suggests that word of AI's reputation is spreading fast and that small business owners are well on their way to becoming true believers.

For example, many of these businesses have been relying on ChatGPT, to fulfill their bookkeeping and accounting needs, including invoicing and bill payments. A smaller but significant number are using ChatGPT—or other forms of AI—to manage their social media. What's interesting though is that most business owners seem to understand the technology's current limits, as less than 15 percent of businesses report using ChatGPT for HR tasks like employee onboarding.

This seems wise given that experts have been telling business owners to be wary of using AI to handle HR tasks, at least for the time being. There's no doubt that, at the moment, AI's capacity to replicate human judgment and intuition is limited and the same is true of its comfort with complex decision-making and creative problem-solving. Empathy, especially, remains a uniquely human trait.

Even so, and as B2B Reviews points out, AI lets businesses do a lot more with a lot less. Again, that's bad news for workers, but for businesses, it's a ray of light when they fear the economy is starting to fade to black. A mere handful of mass-market AI tools are permanently transforming the way a business is able to deal with a crisis, but also its capacity to scale up when economic conditions improve according to B2B Reviews, this leads some to question the whole idea that workers are the inevitable victims of AI.

After all, if a business survives a recession with the help of AI, it's in a position to potentially hire additional employees at some point in the future when growth resumes; whereas, a bankrupt business would be knocked out of the game entirely.

The Truth is in the Data: Using AI to Predict Recessions

One effective way AI helps to recession-proof a business is to predict when a recession might be on the way. Using AI to boost efficiencies as a recession is hitting is invaluable, but it's even better to understand when a recession might be building steam. After all, AI has truly incredible predictive capabilities due to its ability to analyze unimaginable volumes of financial data and draw conclusions about potential crises weeks and months before they become obvious.

Number crunching and pattern recognition are key capabilities of AI, which help the technology to spot irregularities and potential dangers such as signals of coming economic disruption. While it can't (yet) predict downturns with perfect consistency, it's getting better every day and is an effective tool to help warn a business to start taking steps to protect itself from the perceived threat.

Making Recessions Far Less Likely

Not only can AI be used to predict a recession before it hits and also respond afterward, but it can also actively prevent a recession from ever coming to pass in the first place. This is because the financial markets, since the day they were created, have been driven by human emotion. While positive emotion has driven legendary bull runs, it's also given us nightmare scenarios like the Great Depression and the financial crisis of 2008—both of which emerged out of generalized fear that gave way almost immediately to unfettered panic.

AI, unlike human investors and the titans who run the economy, isn't prey to these transient emotions. Its decisions are rooted in what the data says and in turn, has the power to keep the markets on a much more even keel. The impact of "irrational exuberance" in the midst of bull markets and the human tendency to believe that the past is always prologue can be mitigated by removing the panic that can push the markets toward a crash.

If this scenario eventually comes to pass—one that would effectively shield businesses of all sizes from the ravages of market chaos—they would, as a collective, be much better positioned to survive periods of economic recession. The more widely AI is used within the business community, the more likely it is that—in time—it will become an integral feature of the whole economic system. Businesses will not only be more resilient in and of themselves, but recessions will occur far less often.

Today's AI tools can't fully recession-proof any business, but they can come pretty darn close. They can help a business spot a potential recession, deal with the negative effects, and will soon help stop them from occurring in the first place.

However, it's important to be honest AI has its flaws as it isn't a silver bullet, nor is it foolproof. It's always going to need competent human beings around it to keep an eye on things, tweak its performance, and make sure it's helping businesses, not hurting them.

But it's also important to remember that recessions (and depressions for that matter) are truly terrible events, for businesses, for consumers, for everybody—and the more tools we have on hand to mitigate their impact, the better off all of us will be.

About the Author

Mridula Saini is Chief Revenue Officer at IKASI, providers of an innovative self-learning platform powered by AI. IKASI specializes in hyper-personalizing engagement experiences for business and marketing professionals at the customer level, aiding them in enhancing their net revenue growth. For more information, follow them at www.ikasi.ai and on LinkedIn.