Recession Advice: Go on the Offensive With IT Investments

Digital opportunities are plentiful right now, and internal funding is still available as business executives see digital as key to dampening the effects of inflation and integral to growth strategies. But digital investments need to support specific business cases.

Gartner predicts that by 2027, 75% of all IT investments will fail to drive meaningful business value if CIOs do not establish a clear and actionable technology investment model. 

Make sure you foster a productive CFO-CIO partnership that focusses on enterprise-wide outcomes when you try to seek and sustain funding for digital initiatives.

But longer-term, what’s needed is a sustainable talent acquisition and development pipeline, set up to ensure the right talent is in the right place at the right time. And what has remained true since the pandemic forced an overnight change in work models is that the employee value proposition (EVP) must evolve to attract and retain digital talent.

Long-term, you also need to diagnose your enterprise’s particular talent challenges to develop a strategy and tactics tailored to address them. Key elements of future-proofing the IT workforce in this way are:

1. Identify and prioritise digital skills and talent needs.

2. Devise strategies for talent:

   • Recruitment. To ensure you attract and hire the right high-potential talent profiles.

   • Renewal. To ensure continuous renewal of workforce capabilities that support the changing needs of digital business.

   • Retention. To deliver on key drivers of employee engagement and develop a total rewards strategy to motivate and retain employees for the long term.

   • Release. To effectively offboard as well as onboard, since former employees may re-join the company in the future or become valuable customers, partners and brand advocates. 

_{Data sources: 2022 Gartner Overcoming the Barriers to Digital Execution Survey; 2022 Gartner CEO and Senior Business Executive Survey; 2022 CFOs’ 2022 Playbook for Enhancing Profitability and Driving Digital Acceleration}

Worldwide IT spending is still rising, and 70% of CFOs expect digital technology to continue to get more funding. But CFOs expect to reduce costs if inflation persists and are telling business leaders to find efficiencies and savings and to prepare to live in an environment of trade-offs.

Economic headwinds inevitably force organisations to focus on cost reductions. The key is to avoid common cost management errors that limit the organisation’s financial health and growth. Talent and digital will be top priorities in spending.

Avoiding common cost reduction mistakes

Even when approaching costs strategically, CIOs will likely be asked to reduce costs in the short term. They will need to do that while inflicting the least damage on the mid- and long-term health of the business.

Three things your board won’t want to hear when looking back at today’s cost decisions:

• “Our costs kept increasing with inflation and now our margins are uninvestable.”

• “We cut costs too far and couldn’t keep up with demand when it returned.”

• “Higher product pricing led to permanently losing market share.”

Done right, strategic cost optimisation uses a programmatic, shared approach to evaluate spend and costs, enabling you to optimise current resources and shift savings to investments that deliver greater value to the business.

To ensure that digital doesn’t go underfunded due to cost pressures, make sure you aren’t forced to simply self-fund digital initiatives through cost savings from other budget areas. Realising scale from digital efforts requires more substantial funding than that generated by IT budget savings, and digital is not a zero-sum game. 

Articulate both costs and benefits in terms of business value and foster a productive relationship with the CFO to secure access to digital-investment funding (see also “Prioritise digital bets”). 

_{Data sources: 2022 Gartner Forecast Analysis: IT Spending, Worldwide (June 2022); 2022 Gartner Funding Digital Initiatives Survey; 2022 Gartner CEO and Senior Business Executive Survey}

• Gartner recommends negotiating future price increases below regional inflation rates.

• Many vendors operate with margins of 50% or more; make sure to know the root cause of requested price increases.

• Worldwide public cloud end-user spending is expected to reach nearly $500 billion in 2022.

Vendor negotiations are challenging even in the most favourable economic conditions, but inflation and economic uncertainty add new complexity. You need to be especially vigilant in managing IT vendors to decipher whether seemingly exorbitant price hikes and excessive renewal costs are fair and in line with economic indicators.

While managing IT costs is an ongoing imperative, certain technologies are especially integral to offensive digital strategy today. For example, public cloud is growing as the primary architecture for modern workloads, and public cloud end-user spending is surging. But cost mistakes often accompany cloud migration and ongoing cloud costs can spiral. Planning a cloud strategy must include decisions about services and providers from the outset.

Clients often tell Gartner they struggle with conflicting messages from vendors, which make it difficult to accurately predict tangible cost savings from the chosen strategy. For example, traditional cloud vendors may continue to push on-premises infrastructure and have modernised their pricing to offer pay-per-use models while cloud providers may make exaggerated cost savings claims about migration.

While the inflationary environment may make vendor negotiations thornier, technology proposals must always include enough detail to enable CIOs and their teams to unbundle terms and surface hidden and missing costs. Make sure to use tools and financial models to evaluate new and renewal acquisitions and negotiate complex deals effectively.

For example, Gartner recommends a four-step approach to analyse and negotiate multi-year software and SaaS deals. At a glance, those steps are:

1. Engage stakeholders to forecast usage and implementation.

2. Request vendor pay-as-you-go (PAYG) proposals to compare multi-year prepay options.

3. Calculate the net present value (NPV) of PAYG payment streams to compare prepay options.

4. Use NPV-to-prepay analysis models for leverage to negotiate better pricing and terms.

A technology road map is a strategic blueprint that communicates how an enterprise’s IT plans will help the organisation achieve its business objectives. It often contains visual graphics and supporting documentation that serve as helpful tools to show progression from a current state to a desired outcome.

The point of technology road mapping is simple—to anticipate technology trends and needs and map your pathway to adoption—but the process can be arduous. It can be especially challenging when mapping emerging technologies, with which enterprise architecture (EA) leaders may lack experience.

Impactful road maps illustrate milestones and deliverables needed to translate strategy into execution over a specific period. It takes a structured and comprehensive approach to effectively describe and plan change.

• Create a structured practice for the development and evolution of road maps by identifying templates, taxonomies and tools that promote consistency, efficiency and clarity, both within and across them.
• Provide stakeholders the right level of detail by tailoring road maps to a specific audience and create excitement around the direction.
• Maintain traceability across road maps to expedite decision making by leveraging business outcome metrics.
• Enable discovery and usage of road maps in order to improve use and adoption by publishing and actively promoting road maps to their intended audience.