When economic times get tough, IT leaders who have already prepared themselves for possible budget cuts tend to weather the storm better than counterparts who are caught by surprise.
Recessions typically mean enterprise-wide cuts, and IT is rarely spared. “A strong technology portfolio management process, tightly aligned to enterprise strategy and priorities, is important to ensure critical programs and projects remain above the line,” says Tim Potter, a principal at business advisory firm Deloitte Consulting. “By collaborating closely with business partners while rebalancing an IT budget, IT leaders can be sure that technology project prioritization is aligned with corporate direction.”
To prepare for a possible recession, IT leaders should consider reducing complexity and cost by simplifying their technology stack, advises Matthew Leach, vice president, digital transformation services, with IT service and consulting company NTT DATA. He advises searching for and confronting technology and process impediments. “Then turn your attention to managing organizational risk successfully in order to understand and protect against the challenges of new business models.”
Weathering the Storm
Damon Frank, principal, managed technology services, with management consulting company RSM US, suggests revisiting the current IT strategy and reprioritizing initiatives and budgets. Place critical items and core operational requirements at the top of the list. “Nice-to-have projects that don’t register high on the priority list may need to be tabled until market conditions change,” he says. “IT organizations should focus on what’s most important and what’s needed to keep the business and operations running.”
Developing a cost-savings strategy can help mitigate the risks of severe budget cuts. “Without this forethought, IT teams could see their initiatives shelved, their staff drastically reduced, and their budgets slashed,” says Sreedhar Bhagavatheeswaran, global head of consulting at technology advisory firm LTIMindtree. “By planning ahead, IT leaders can more effectively ensure the long-term viability of their initiatives and programs,” he notes.
Leach suggests investing in automation. “It will increase productivity and efficiency while recapturing the capacity needed for transformation.” He also recommends embracing innovation as a way to build stakeholder value and accelerate product delivery. “The bottom line is that to weather the storm IT organizations need to be proactive and close the gap between what the business has today and where it needs to be to take advantage of tomorrow.”
Recession: Play Offense
Discretionary projects associated with new products, services, or revenue streams are typically the first to go in a recession. But that’s generally not a smart move. “When organizations curtail spending on digital projects and just focus on keeping the lights on, they run the risk of falling behind their competition,” Leach warns.
To sustain or improve growth expectations, Leach says organizations must play offense when facing an economic downturn’s headwinds. He recommends launching new products while driving continuous innovation throughout the existing portfolio. “If you just focus on playing defense, you will fall behind,” Leach says. “Instead, ruthlessly prioritize new development efforts that contribute to revenue growth and improved profitability.”
The IT plans most likely to be shelved during a recession include digital transformation projects that haven’t yet yielded a definitive return on investment in terms of customer acquisition, customer satisfaction, or employee productivity, Bhagavatheeswaran says. He advises pursuing digital projects in short sprints, leading to quick wins that will build long-term momentum.
To conserve resources, Frank suggests transferring back office IT staff to higher-priority IT initiatives. He also recommends outsourcing back-office and administrative functions, such as monitoring, patching, maintenance, and service desk operations, to a managed services provider that can handle routine tasks at a lower, predictable monthly spend.
Yet another approach to reducing costs and sustaining business-critical IT operations is curtailing or pausing projects that are either transformational or innovative. “Such projects may carry a significant upside, yet the cost-to-achieve . . . may be too steep in the current financial environment,” Potter notes.
Don’t Wait for Recession
You can’t wait until the next shock forces a reaction, Leach warns. “Transforming your business and operating models now puts the power and control over how you respond to change in your hands.”
IT leaders who invest in modern delivery, cloud, and automation may be better positioned to attract and hire top technology talent, Potter says. “This will serve organizations well, both in a recession and when economic growth surges post-recession.”
IT organizations should keep their eyes on the big picture, Bhagavatheeswaran advises. “Business leaders must remain keenly aware of the value that IT investments bring to business operations and dispel the notion that the function is simply a cost center.”
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