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economic downturn
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This article was first published on e27.

According to a global survey of CEOs, 61 per cent believe a recession will start by the end of 2023, and 15 per cent think one has already begun. Although they are unavoidable, recessions can happen at any time.

A difficult balancing act is taking place. C-suite executives must take advantage of opportunities in the market. On the other hand, if they maintain current levels of investment and the economy crashes, they run the risk of spending more than they make.

CIOs will be responsible for reducing expenses and increasing productivity to support their companies’ operations at all phases of the cycle. Global firms and C-suite executives would do well to adapt operations to the needs of the time, even though the pandemic and the ensuing lockdowns in the recent past may have contributed to some of the reasons.

Let’s look at some concerning statistics:

  • In a global study of 750 CEOs and senior C-suite executives, 50 per cent of CEOs said they believed their company’s operating region had already gone through a recession.
  • The median GDP growth forecast for Q4 2021 through Q4 2022 is 1.7 per cent, much lower than the 2.8 per cent anticipated in March, according to the Federal Reserve’s most recent quarterly economic estimates.

It’s common knowledge to cut costs before a recession hits, and there are undoubtedly some areas where doing so would have little overall influence on the company. But better judgement is to seize the chances to accelerate expenditures to increase efficiency over the long run.

For instance, CIOs may choose to invest in system migration to the cloud if they want to have the flexibility to scale up or down during a downturn. IT leaders and CIOs may need to make investments now to survive and sustain a prolonged downturn.

These endeavours aren’t always quick fixes. IT leaders should plan for a more flexible environment over time, but these are three to six months of activities. The objective is to consider how the technology organisations might adapt holistically and consistently, ensuring that the investments reduce the base and foster flexibility.

IT leaders should consider investing in the following areas to get a head start on the impending economic outlook, especially if such changes can yield long-term operational benefits or a recession.

Facilitating improved insights for costs and value

IT directors should be thoroughly aware of their cost structure and the value IT services and investments give the organisation.

Now is the moment to invest in establishing this transparency and clarity if you don’t already have it. Doing so will allow you to make wise decisions to cut costs or support new expenditures.

It’s also crucial to understand how each component of the IT infrastructure serves the company. This information is tribal knowledge in most companies, making it difficult to access or use.

Avoiding new investments in IT

Global CIOs would be wise to hold off on making an IT investment or purchasing modern IT software during the recession, which would last for at least a few months or years. Instead, businesses should anticipate gaining scale and cost efficiencies by making the most of their current IT personnel, resources, and equipment. Additionally, all ongoing IT deals and IT outsourcing must be postponed for a long time.

Investment in FinOps

FinOps investments can help CIOs better control the costs of their IT assets and reduce their cloud bills. To help businesses better plan, budget, and forecast cloud consumption and spending, FinOps is a business management discipline with companion analytics tools. This offers the insight to better match your cloud budget with the business value being produced and minimise possible waste or misalignment.

Aggressively adopting agile

Let this slump encourage you to invest in agile approaches, capabilities, and processes if you haven’t already. Developing an agile toolset cannot be accomplished quickly, and now is the moment to start making that shift if your organisation intends to be resilient through a future recession.

By adopting agile, IT will be better able to align with business priorities and direction by increasing the frequency of business check-ins. It should be a prerequisite that an agile methodology is applied to assure effectiveness in a moving environment. Increasing the frequency and depth of agile methodology emphasises connecting and executing quickly evolving business challenges during difficult circumstances.

Leveraging SMAC and AI

Together, today’s five global technology trends — Social, Mobility, Analytics, Cloud, and Artificial Intelligence (AI) — are a thriving force in the industry. CIOs can encourage their staff members and IT teams to create a tech-savvy culture and environment within the company.

Investing in tech like no-code can turn out to be very useful. Such a strategy would assist the work-from-home (WFH) personnel and their work-from-office (WFO) counterparts in making the most of the current IT infrastructure, resources, and assets.

Also read: No-Code: The Top New Priority for CIOs

Reevaluating IT services contracts

Contracts may occasionally be automatically renewed without review or optimisation. A good moment to review the outsourcing portfolio is right now.

Those providers who can deliver demonstrated, quantifiable financial value can and should continue to be rewarded by their clients and customers. This is key to successful growth in a recessionary environment. That being said, purchasers must be certain that their value-added partners are financially stable and aren’t in danger of cutting down on their investments in their goods and services to the point where performance and quality could suffer.

To find potential for cost reduction, IT leaders might collaborate with partners.

Rather than ending a service entirely, it may be advantageous for both parties to restructure it to cut expenses. They might find ways to move more work to lower-cost regions and streamline their delivery processes.

Given the increasing labour expenses faced by IT service providers, asking for significant price reductions could not be successful. Clients have various choices for easing contract constraints to minimise costs, and they can agree to help the supplier more, take on greater risk, and decrease the supplier’s obligations.

Shutting down obsolete systems

Give your hardware and software asset base some thought. There could be opportunities to minimise these costs, especially if some of these assets are close to retirement or are suitable candidates for retirement. Additionally, chances for rationalisation or consolidation can exist.

System redundancy is an intelligent place to minimise costs. It can be difficult to terminate an application, but CIOs that are risk-takers would shut down a system and see whether anyone complains.

However, CIOs should confirm that the discharge is justified financially. You will suffer a financial loss if you decommission an item that is still losing value. Intelligent cost management requires a team sport approach, working with finance and those who can conduct the analysis and offer decision support.

Scaling successful pilots

Pilots are always more expensive than adoption at scale, but experimentation and assessment are crucial. Accelerate those deployments, so you can escape pilot purgatory and clear the decks of the stuff that isn’t producing value.

Whatever cuts CIOs are considering, it’s essential to consider both the potential short- and long-term benefits. When doing this, you need to be wise and picky, and thoughtlessly cutting costs will cost you dearly.

Also read: Evolution of CIOs Role and Responsibilities in the context of Digitalization

Focusing more on volume adjustments than cost cutting

IT executives can seek quantity reductions by rationalising the units they use or lower their unit prices by requesting a discount from vendors. For instance, they might reduce the number of software licences they purchase.

From experience, cutting costs is not very successful. Vendors may take advantage of the chance to rescind agreements they didn’t like, including lowering SLAs in exchange for lower prices.

Final thoughts

We talked about how CIOs may keep IT spending in check during the economic downturn, and they should take preventive action rather than waiting until the recession actually starts.

As a result, all CIOs must maintain IT strategy alignment with their general business equivalent and assist the company in achieving its efficiency and cost-cutting objectives throughout the current economic downturn.

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