Published on November 8, 2023, 6:19 am
IT budgets are facing unprecedented challenges due to various factors, but forward-thinking CIOs who work closely with the C-suite have found ways to adapt to rising costs while others struggle to keep up. Despite inflation dropping from its peak in 2022, the pressure on IT budgets continues to persist. Rising prices pose significant challenges for IT operations and staffing, especially for global organizations operating in countries with high inflation rates like Poland (10%), India (8%), or Turkey (50%).
According to a survey conducted by IDC, the areas of IT most affected by rising costs include SaaS and PaaS expenses, in addition to increasing tech salaries. Forty-one percent of surveyed CIOs reported revisiting their IT budgets at least every month. Inflation is expected to be the leading threat to businesses for the next six months, according to 40% of CEOs surveyed by PwC.
To tackle rising costs, CIOs are exploring strategies such as staff reductions, downgrading service level agreements, and increasing productivity. However, they emphasize protecting strategically important digital transformations as they provide long-term benefits and greater flexibility.
When considering these options, CIOs must collaborate with CEOs and other decision-makers within the organization to ensure collective decision-making. Lack of alignment with the C-suite can lead to operational disruptions and costly mistakes. Effective communication and coordination are essential.
Organizations like Ameritas Life Insurance have experienced significant increases in IT budgets despite a general inflation rate of 3.7%. Andrew Blau from Deloitte Consulting believes upcoming renewals could help lower inflation rates this year. Interestingly, as more IT budgets shift towards cloud-based solutions, infrastructure costs have remained relatively stable compared to software costs.
Software-as-a-Service (SaaS) has been beneficial for many organizations but has also proven to be more expensive than on-premises software. The ongoing price hikes associated with SaaS make it unsustainable for low- or medium-margin businesses. Richard Wiedenbeck, CTO and chief transformation officer at Ameritas, advises organizations to carefully assess the value of services in relation to their increased costs and seek potential cost savings through adjustments in risk profiles and usage patterns.
CIOs also recommend partnering with software vendors to negotiate pricing contracts that reflect mutual benefits. This can involve requesting discounts or adjusting payment schedules. Leveraging lower-cost emerging markets can also help organizations manage talent costs and mitigate the impact of general inflation.
The increasing cost of tech talent poses a significant challenge for many IT budgets. Rising competition for top talent has led to salary inflation, particularly in the post-pandemic era. Remote work arrangements have further complicated matters by removing geographical barriers and eroding pay differentials based on location. Some CIOs have increased the frequency of salary reviews, while others have opted to recruit senior-level personnel or downsize teams temporarily.
Adapting to rising costs requires flexibility, efficiency, and thorough planning. Deloitte’s Blau emphasizes the need for IT leaders to take a broader view when developing strategies to address unexpected increases rather than relying solely on predictions. Collaboration with CEOs is crucial for understanding where inflation impacts various aspects of the organization.
As PwC’s Phaneuf highlights, strategic digital transformation plans are vital during times of high inflation as they enable organizations to optimize resilience and efficiency. Investing in technology and leveraging project management offices (PMOs) can help streamline projects and meet evolving needs.
In summary, CIOs must consider pricing, partner relationships, and risk when making decisions to adapt their IT budgets amid rising costs. Effective collaboration with vendors and internal stakeholders is vital for navigating these challenges successfully. With careful planning and strategic investments, organizations can weather the storm of inflationary pressures while maintaining resilience in both the short and long term.