Recession Advice: Go on the Offense With IT Investments

Despite the pressure on funding from high interest rates, the appetite for digital investment remains strong, with 89% of boards agreeing that digital is an implicit part of growth strategy and 80% of CFOs planning to increase their technology spend by at least 3% — and 43% planning to increase that spend by 10% or more.

Prioritizing digital investments by business value

IT organizations need a formal process for evaluating, measuring and prioritizing IT spend, tying investment opportunities to the priorities the organization’s primary business objectives.

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.

Six common business objectives are:

1. Revenue improvement

2. Cost reduction

3. Risk reduction

4. Quality improvement

5. Time to value

6. Efficiency gains

Whatever are your objectives, it’s key to prioritize and weight each to validate your key business outcomes so you can produce a defensible yet actionable list of supporting IT investments.

Also make sure you foster a productive CFO-CIO partnership that focuses on enterprisewide 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. You’ll need to reframe EVP components by adopting the human deal — designing for people, based on life experiences and centered on feelings.

Gartner predicts that through 2024, 70% of companies that do not have a well-defined EVP will be unable to hire and retain sufficiently for their digital talent needs.

Long-term, you also need to diagnose your enterprise’s particular talent challenges to develop strategy and tactics tailored to address them. Use a construct like the Gartner Digital Talent Management Framework to take a structured, life cycle approach to digital talent management, from recruitment to renewal and retention through to talent release.

CIOs and IT leaders can use this approach to identify and prioritize digital skills and talent needs and devise appropriate strategies to evolve and develop the workforce in line with changing business priorities.

Worldwide IT spending is still rising, and 80% of CFOs plan to increase their technology spend by at least 3%, despite ongoing recession concerns.

Economic headwinds inevitably force organizations to focus on cost reductions. The key is to avoid common cost management errors that limit the organization’s financial health and growth.

Avoid 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 optimization uses a programmatic, shared approach to evaluate spend and costs, enabling you to optimize 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. Realizing 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 “Prioritize digital bets”). 

• 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 $600 billion in 2023.

Vendor negotiations are challenging even in the most favorable 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 modernized 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 analyze and negotiate multiyear 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 multiyear 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 roadmap is a strategic blueprint that communicates how an enterprise’s IT plans will help the organization 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 roadmapping 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 roadmaps 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 roadmaps 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 roadmaps to a specific audience and create excitement around the direction.
• Maintain traceability across roadmaps to expedite decision making by leveraging business outcome metrics.
• Enable discovery and usage of roadmaps in order to improve utilization and adoption by publishing and actively promoting roadmaps to their intended audience.