During most of 2023, business outlook has seemingly ping-ponged between fears of an economic recession and hopes that an almost mythical soft landing—a term some economists use to describe a mild recession with a slight increase in the unemployment rate—will tame inflation without causing negative growth that generally results in high rates of layoffs and other cost-cutting measures. Rising optimism could spark greater opportunity for IT investment, although the outlook may be still too uncertain for some.
This tentative outlook puts IT leaders in a tight spot, as they’re responsible for steering innovative technology investments aimed at spurring growth without threatening profitability in the event of a downturn.
While pessimism among IT leaders about the 2023 economic outlook is giving way to a more optimistic view, we’re still facing uncertain times that call for a highly strategic approach to spending.
“C-level execs are making technology investments plans based on the return on investment (ROI) and the inherent resilience of technology investments that can fuel growth,” Leslie Hand, Group Vice President, IDC Retail and Financial Insights, writes in a recent IDC Spotlight, ROI-Based Technology Investments to Fuel Growth, sponsored by Rimini Street.
Hand writes, “Companies are preserving profitability by reducing costs through digital transformation, budget reprioritization, and cutbacks on nonessential or low-value projects and expenses to fuel growth by reallocating funds to innovation initiatives.”
Control costs in inflationary cycle
According to the Spotlight, IDC’s May spending survey reveals concerns over the negative impacts of inflation-driven vendor pricing, staffing and labor shortages that prevent effective use of technology, and concerns over expected business revenue. IT leaders who are best able to control costs while funding key innovation initiatives are likely to be most successful in navigating economic surprises and adapting to current and future needs.
“Reducing the ongoing cost of software and technology investment and maintenance can help CIOs, CTOs, and CFOs offset current headwinds, including driving growth while remaining profitable,” Hand writes, suggesting that organizations, “identify new partners that deliver more value and/or outsource the implementation and run components of software and technology operations to third-party providers to reduce ongoing maintenance costs.”
It all comes down to the total cost of ownership, particularly with high-ticket items such as ERP solutions. Annual maintenance fees represent a key part of the ownership cost of these crucial systems, with costs generally increasing no matter whether an organization chooses to maintain operations on their current release or follow a vendor-dictated roadmap of upgrades and migrations.
Focus on improving ROI
IDC’s Hand asserts that companies should review software contracts and maintenance agreements regularly. “Organizations should consider the opportunity to improve the ROI of technology investments by reviewing, analyzing, and seeking alternatives that present improvements in the cost of ownership of legacy and new cloud-based ERP investments,” she writes.
According to Hand, working with a third-party support provider may result in as much as 90% lower total support costs than traditional ERP maintenance while having the advantage of receiving support for older custom code and integrations.
Rising costs make it a challenge to sustain growth and profitability, never more so than during an inflationary cycle. IT budgets already strained with pressures to “keep the lights on” by maintaining existing systems, often leave little budget to invest in growth initiatives and digital transformation.