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With an economic slowdown all but inevitable, recession is top of mind for most business leaders. If it happens in the near term, it will be a financial cycle like none other.
“We have record low unemployment, with record high inflation. We have prices for technology and services higher than any CIO, IT leader, or business owner has to deal with,” says Ryan Prindiville, partner-in-charge of consulting at accounting and business consulting firm Armanino. “At the same time, businesses are coming off of record growth over the last couple of years. So you have a dichotomy that business leaders, forecasters, and prognosticators have never seen before.”
Cost cutting ahead of recession is conventional wisdom — and there are certainly some targets for reduction that would have limited negative impact on the business. “But better wisdom is to take the opportunities to accelerate investments to improve efficiency long term,” says Rick Pastore, senior research director and IT advisor at The Hackett Group.
CIOs may want to invest, for example, in migrating systems to the cloud because you want the ability to scale up or down in a recession. “There may be investments that IT leaders and CIOs need to make now to withstand and sustain a prolonged downturn,” agrees Prindiville.
These ventures aren’t necessarily short-term fixes. “IT leaders ought to be planning for a more flexible environment over time, but these are three to six months exercises,” explains Michael Fuller, principal at The Hackett Group. “The goal is to think about how they might change the technology organizations holistically and consistently, making sure those investments are leaning out the base and creating flexibility.”
To get ahead of the pending economic outlook, IT leaders should consider making investments in the following areas, especially where such shifts can reap long-term operational benefits, recession or not.
Enabling better insight into costs and value
“IT leaders should maintain a deep understanding of their cost structure as well as the value that the IT services and investments provide to the organization as a whole,” says Patrick Anderson, director of technology, strategy, and architecture at global consulting firm Protiviti.
If you don’t already have this transparency and clarity, now is the time to invest in creating it, as doing so will enable you to make intelligent moves to free up costs or support additional investments.
Knowing how each aspect of the IT infrastructure supports the business is also critical. “In most organizations, this information is tribal knowledge and is not easy to access or action,” Anderson says.
Going cloud native
Boomi recently made the transition to a cloud-centric stack with investments in cloud-native applications and data integration tools. “We no longer rely on legacy solutions that require large teams and budgets or lots of manual work to implement changes or new integrations,” says Boomi CIO Neil Kole. “Our transformation initiative has resulted in high employee satisfaction scores, lower IT cost as a percentage of revenue, and faster ROI on our investments.”
Getting real with FinOps
CIOs looking to optimize their cloud costs can invest in FinOps to more accurately manage IT asset costs. FinOps is a business management discipline with accompanying analytics software designed to calculate cloud costs to help organizations better plan, budget, and forecast cloud consumption and spend. “This provides the transparency to better align your cloud spend with the business value being delivered and eliminate potential waste or misalignment,” says Protiviti’s Anderson.
Doubling down on agile
If you haven’t already invested in agile approaches, skills, and processes, let this downturn push you toward that change. “Creating an agile toolset can’t happen overnight,” says Kole of Boomi. “If your business hopes to stay resilient through a potential recession, now is the time to begin making that transformation.”
Embracing agile will enable IT to increase the frequency of business check-ins creating greater alignment with business priorities and direction. “It should be a requirement that an agile methodology is used to ensure effectiveness in a shifting environment,” says Eugene Kuerner, CTO at expense management software provider Center. “Increasing the frequency and depth of agile methodology during challenging times underlines connecting and executing to rapidly shifting business challenges.”
Collaborating and getting clarity
“The smartest step an organization can take is viewing it as an opportunity to embrace the downturn wave, and intentionally emerge from the recession stronger,” says Stanley Huang, co-founder and CTO at Moxo. “Organizations should take a step back and outline an overview of their organization’s current business situation — identifying cash-flow trends, and cost structure layout in as much detail as possible.”
Working closely with the executive team to map out that overview enables IT leaders to focus not just on blindly cutting costs but shifting spending. “Without a clarified company overview strategy, IT managers are more inclined to make ad-hoc decisions, whereas they should be spending the time on aligning IT goals with the overall business goals,” Huang says.
Upping the analytics ante
Want to make your finance organization happy? One of the better investments IT organizations can make now is in advanced business analytics and intelligence, giving the organization better tools to understand their own spend.
“Investing in more analytical capabilities, smarter reporting tools, and greater transparency around what’s being spent and why will enable smart CFOs to make better decisions,” says Pastore of the Hackett Group.
Accelerating efficiency plays
Getting ahead of the potential economic fallout is beneficial, and CIOs should push for and protect those projects that will increase efficiency and productivity. “Accelerating initiatives that would otherwise be at risk should be seriously considered,” says Erik Bailey, CIO at IP software and services company Anaqua. “Any initiative implemented now that reduces cost or increases efficiency will result in a better overall position if a downturn does impact the organization.”
The Hackett Group found that the highest performing 10% of IT functions automate 2.1 times more business processes than their peers. As a result, they achieve a 47% greater reduction in the cost to run and manage technology. Some functions ripe for greater automation ahead of recession include HR, finance, and IT itself.
“Any IT leaders concerned about a possible financial fallout due to recession should focus on implementing automation and low-code technologies to enable citizen developers and integrators within their organizations in order to free up their IT team members’ time for more impactful work,” says Boomi’s Kole.
Pursuing promising new technologies
Now is not the time to go into heads-down, defensive mode. CIOs and their teams should keep their eyes out for opportunities to invest in emerging technologies. “Pay close attention to emerging technologies,” advises Huang of Moxo, “keeping a pulse on technologies that can benefit your organization from an internal and external perspective.”
Reallocating operating savings
In a recession, IT’s operating costs may naturally go down. Smart CIOs will divert some of those idle operating costs to new initiatives rather than losing that money to another part of the business or banking it. “Divert that into infrastructure efficiency projects to accelerate existing projects,” says Pastore.