A recession is looming: time to re-evaluate your IT budget?

06 April 2023 12:18 PM By CIO Studio

by Paul Matthews, CEO

With the news that the economy contracted 0.6% in the last three months of 2022, the economic indicators are pointing to a recession, and much more quickly than the Reserve Bank predicted.

In terms of the Government’s efforts to take the heat out of the economy and tame inflation, that’s not necessarily a bad thing.  Theoretically, at least. But with the big banks projecting GDP contractions each quarter this year, there will be less money spent - and in some cases, that might impact IT projects, too.

But is that really the best move?

Using recession to prepare for growth

If the Covid-19 pandemic was characterised by a large uptick in IT spending as organisations accelerated digital transformation efforts to serve customers online, the post-pandemic environment has been about right-sizing investment for long-term, sustainable growth.

However, many businesses we work with have been tackling technical debt, refreshing core systems and applications, and moving to cloud platforms. 

In fact, sometimes when times are tough it’s the ideal time to invest - make change now, ready to reap the rewards when things inevitably start to come right again and the economy opens up.

Smart businesses use this time to give them a huge competitive advantage later.

And there’s lots to do. In every industry segment, businesses need better customer insights, visibility into supply chains and a more customer-centric approach. Data analytics, digital marketing and effective use of tools available in ERP (enterprise resource planning) systems will come into their own in helping companies weather the economic storm.

There are also the reverberating impacts of the actual real storm - last month’s cyclone damage to parts of Northland, Auckland, Hawkes Bay and Tairāwhiti to consider.

It can be nerve-wracking to make significant technology procurement decisions as dark clouds loom. However, now is the time to put technology to work for you in the short term, but also ensure your IT investments will set you up for economic recovery.

Here are six things to prioritise as you plan for IT investments in 2023:

1. Re-evaluate your tech spend: Given the changing environment, it's important to evaluate your IT budget and prioritise the most critical projects. 

For example, costs that might be able to be saved in BAU activities could be prioritised into more strategic projects. 

And most importantly, not falling into the trap of impacting your quality of service through cost cutting due to short-term thinking. This requires consultation across the executive, board, and wider business to ascertain what the short and long term priorities are.

2. Consider alternative procurement models: Instead of outright purchase, consider alternative procurement models such as leasing, renting or software as a service (SaaS) solutions. These models can help spread the cost over a longer period and reduce upfront investment and it’s the perfect time to implement these changes.

3. Focus on longer-term ROI: You should focus on the return on investment (ROI) of any digital and tech spending and procurement. It's important to evaluate the potential impact on the business and the benefits that the investment would bring, particularly so in a tight economy. This is where robust forecasting based on demand modelling and customer behaviour insights can come into play.

4. Evaluate vendor relationships: Evaluate your existing vendor relationships and consider consolidating vendors or renegotiating contracts to reduce costs - but only where you get value in doing so. Centralisation seldom leads to cost savings. 

You should also consider switching to lower-cost vendors that provide similar services, but again, be careful that this is evaluated properly. Many vendors have recently put their prices up citing increased costs. A price benchmarking exercise will ensure you are getting value for money.

5. Optimise the procurement process: To improve efficiency, it’s worth looking at how you can optimise the procurement process. This includes streamlining by reducing the number of approvals required and automating manual tasks. The faster you can get through the procurement decision-making process, the quicker you can get projects underway and IT working to achieve your goals.

6. Plan for the future: While it may seem important to cut costs in the short term, the key point here is that business leaders should plan for the future. While it can feel like doom and gloom now, the economy is cyclic and will bounce back. You need to evaluate the long-term impact of any cost-cutting measures and ensure that your business is well-positioned to take advantage of the huge growth opportunities coming on the upside.

While 2023 will be a challenging year for many organisations, it is also an opportunity to take a large look at your existing and projected IT spend to make sure it will serve you well through the looming recession and - most importantly - beyond.

CIO Studio can help you make sound digital and tech procurement decisions. Get in touch with one of our team and find out about our Discovery Project, a full strategic tech review to determine exactly what you need to meet your business goals.