How IT Leaders are Coping with Recession Concerns

Pat Phelan
VP, Market Research
4 min read
How IT Leaders are Coping with Recession Concerns

With a war raging across the ocean, a looming European energy crisis this winter, and inflation numbers refusing to subside, the macroeconomic environment has caused enterprise IT leaders to rethink their strategies. Earlier this summer, we wrote on the impact that an economic recession and ongoing technology talent shortage can have on organizations, and according to a recent tech spend survey from Texera, these challenges are further highlighted – 12% of respondents are expecting a decrease in their tech spend budgets.

So how are IT leaders coping with this one-two punch of bad news? Here are how some are dealing with the coming recession.

Auditing the tech stack to cut costs

In times of plenty, the number of software-as-a-service (SaaS) applications and licenses can explode. After all, when things are going well, people tend to pay less attention to their expenses. Prasad Ramakrishnan, CIO at Freshworks, remarked in a recent article on InformationWeek that this is not the case during a recession, however. Ramakrishnan said he is encouraging his team to go through “app rationalization” processes to ensure that product utilization remains high while unused licenses are eliminated where possible. Gartner found that of the surveyed IT leaders who are in Ramakrishnan’s shoes, “Forty percent report that their IT function has been asked to find ways to reduce costs.”

“Constantly audit your tech stack,” Ramakrishnan advised InformationWeek readers. “We also involve the end user to make sure everyone is part of the process, akin to a democratized process.” Ramakrishnan notes one other key consideration: although it is paramount to eliminate software/license bloat, it should not be done at the expense of innovation.

Delaying system upgrades, innovating on the edges

With a strong focus on cost savings, one big-ticket item that may be on the chopping block is that shiny new upgrade. This kind of decision can save some money on the balance sheet, but it could cause frustration in the workforce, particularly if employees have been expecting a new feature to provide much-needed relief in their processes.

Innovating on the edges is one way to work around this problem. In a recent Rimini Street blog post, Scott Hayes wrote that some organizations can obtain desirable functions and features via SaaS solutions that are tailored for specific processes and industries. Instead of going through a lengthy (and costly) upgrade, it may make more sense to keep what works and shore up deficiencies. This is the foundation of a composable ERP strategy, wherein the technology is designed in a modular manner so that you can achieve your business objectives in the best way possible.

Spending big for long-term success

Even though IT leaders are focused on cost cutting, Flexera also reported that 71% of those surveyed are expecting an increase in technology spend. This may seem contradictory considering the current economic situation, yet an article on validated this phenomenon, reporting that many U.S. retailers say that investing in technology is a top priority. Why? In past downturns, such as the financial crisis of 2008, the retailers that invested in IT were able to not only survive, but they also grew faster than their rivals who did not prioritize investment in technology.

“A lesson has been taken from the aftermath of the [2008] financial crisis,” Thomas O’Connor, vice president of supply chain-consumer retail research at consulting firm Gartner, told CNBC. So, although some enterprises are cutting back, others view this slowdown as a time to double down on technology in hopes of courting customers away from those who choose to remain stagnant amid uncertainty.

Outsourcing support to offset the technology talent shortage and budget constraints

Another big challenge for IT leaders that is being exacerbated by recession concerns  is the technology talent shortage. In February 2022, well before the recession went into effect, CIO (formerly IDG Communications) found that a lack of technical talent can hamstring an organization’s ability to grow. In fact, 28% of respondents said that they have missed opportunities to grow the business due to the lack of technical talent.

The CIO report noted four key takeaways from the technology talent shortage:

  1. The tight technology talent market and a shortage of individuals with a combination of technical and business acumen is holding back innovation
  2. Enterprises are running older versions of ERP systems and there is a deficiency of expertise on these legacy systems
  3. Across the board, HR is over-focusing on modern IT skills, which is causing individuals to ignore shoring up their skills in older technologies
  4. Cybersecurity is the most desired skill but recruiting those individuals is eating into budgets and head counts

Given budget constraints stemming from recession concerns, enterprises must employ a mix of strategies to address the tech/IT skills shortage. One approach is to leverage external partners for some services (such as supporting deployed systems) while retraining staff to focus on services that require business and IT knowledge or innovative projects.

While these strategies are critical during hard economic times, you may find that continuing to leverage them on an ongoing basis can help free up resources to fuel innovation and growth.

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