Identify Your Top 2023 Spending Priorities

A Survey of global CEOs reveals that 61% expect the recession to hit before the end of 2023, while another 15% believe the recession is already with us. In a recessionary business environment, organizations need to cut their spending to avoid the risk of running out of revenue should the economy tank. In every organization, IT costs account for the biggest portion of operating expenses and capital investment, and when there is an urgent need for cost reduction, IT spending is likely to be at the top of the chopping list.

If you are an IT C-suite leader in your organization, you need to start thinking of the impact the recession will likely have on your operations. This blog shares key actions CIOs, CICOS, and data analysts need to take to realign IT investments ahead of the potential cuts in their budgets.

Change fixed costs to dynamic costs

In a recession, every organization’s priority is to have as much cash as possible. Experts reckon IT can ensure the business has liquidity by converting some non-priority capital expenses to more dynamic operating costs. One way to transform fixed expenses into dynamic costs is by shifting workloads to the cloud ahead of the potential recession. Studies show organizations that have migrated most of the workloads to the cloud realized three times more cost savings than companies that have not.

Review IT services contracts

If you have contracts with third-party providers that automatically renew without re-assessment or optimization, consider reviewing such contracts. Restructuring a service to reduce costs rather than eliminate them altogether can benefit both parties. Suggest options for service providers to relax contract restrictions that cut costs and reduce supplier contract obligations by taking more risks to reduce costs further. Another option is to figure out ways to streamline service delivery and migrate more work to reduce cost locations.

Seek quantity savings over price cuts

IT leaders can also reduce unit costs by pursuing discounts from vendors and rationalizing used units. A good example is optimizing the number of software licenses you are paying for and reducing SLAs in exchange for reduced charges. Experts believe prioritizing price cuts from vendors might not work, bearing in mind they are also dealing with similar effects of a recession.

Close redundant systems

Evaluate your hardware and software asset base and shut down all redundant systems. Experts agree redundant assets are an ideal target for cost-cutting, and decommissioning a low-value system now can help organizations deal with recession better Typically, assets that are close to retirement or good candidates for retirement offer the best opportunities for consolidation or rationalization.

Pause all low-priority projects

CIOs should also review their project portfolio to determine whether they still align with the business strategy. Prioritizing spending means pausing all low-priority IT projects that contribute little to business cash flows. While experts advise against stopping critical investments that ensure business sustainability through the recession, any other project on your list can be paused until the recession is over.

Cut labor costs

Considering the current IT talent shortage, CIOs typically have several positions they are trying to fill. Given how lean IT teams are right now, eliminating those openings may not make much sense. The alternative is to cut back on contractors temporarily to achieve labor cost cuts.

Scale successful pilots

Although project experimentation and evaluation are vital, pilots tend to be costlier than adoption at scale. To reduce costs, consider accelerating deployments so you can quickly get out of the pilot phase and clear the decks of projects with little value.

Data doesn’t lie: The software and internet services sector has the largest spend

Data from Gartner’s research shows the software services sector has the largest spend on corporate finance relative to company revenue. According to Gartner, the software and internet services sector spend at least twice the spending of the food and beverage sector at equivalent revenue points. Experts explain the higher spend for the finance function in the IT sector can be attributed to a higher level of digitalization in the industry compared to other industries. The fact that nearly 80% of finance function costs originate from personnel costs exposes CFOs to the effects of inflation in a recessionary year. Apart from personnel spend, finance spend in IT also originates from outsourcing and consultants, finance technology spend, and professional services.

Making cost transformations: Let the methodology suit your need

According to Accenture, C-Suite leaders should focus on the following four critical aspects to make cost transformation a reality:

• Leverage advanced analytics to gain real-time visibility: You need data and analytics to make intelligent, fast, and accurate decisions on cost-cutting measures. Now is the time to invest in the right tools and technologies to maximize the power of data and continuously monitor, course correct, and control costs with the changing business environment.
• Redesign your business for resilience and growth: Start redesigning your business afresh and optimize it for resilience and growth during the recessionary year. This allows you the flexibility to consider the necessary tradeoffs and analyze costs holistically, so you align resources with emerging business priorities and capabilities.
• Incorporate the entire team: Bringing everyone along for your cost transformation journey is essential. This helps you minimize conflicting priorities and ensure consistent internal and external messaging.
• Make your transformation count: Cost transformation is not a one-off undertaking. It is a continuous activity that requires a high level of governance, quality data, and insight capabilities to ensure the benefits endure for long.

Ride out of recession with powerful data reporting and analytics solutions

Nearly 80% of business leaders expect a recession within the next 12 to 18 months. There is no doubt that industry experts can provide valuable insights on trends and what the other guys are doing to minimize the impacts of the recession. However, only your data can tell you exactly where your biggest needs will be in the coming year. It can show you where you derive the most profit from and where you are lagging behind due to outdated equipment, dwindling talent pools, or developing markets. 

That is why getting data into the right hands within your organization can benefit you, even in a tough market. Getting informed through end-to-end data access will allow your organization to navigate, and indeed, get out ahead of the next season in the economy. Planning, prioritizing and clear strategies will build the strength you need.