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9 investments CIOs should make before recession hits
With an economic slowdown all but inevitable, recession is top of mind for most business leaders. If it happens in the near term, it will be a financial cycle like none other.
“We have record low unemployment, with record high inflation. We have prices for technology and services higher than any CIO, IT leader, or business owner has to deal with,” says Ryan Prindiville, partner-in-charge of consulting at accounting and business consulting firm Armanino. “At the same time, businesses are coming off of record growth over the last couple of years. So you have a dichotomy that business leaders, forecasters, and prognosticators have never seen before.”
Cost cutting ahead of recession is conventional wisdom — and there are certainly some targets for reduction that would have limited negative impact on the business. “But better wisdom is to take the opportunities to accelerate investments to improve efficiency long term,” says Rick Pastore, senior research director and IT advisor at The Hackett Group.
CIOs may want to invest, for example, in migrating systems to the cloud because you want the ability to scale up or down in a recession. “There may be investments that IT leaders and CIOs need to make now to withstand and sustain a prolonged downturn,” agrees Prindiville.
These ventures aren’t necessarily short-term fixes. “IT leaders ought to be planning for a more flexible environment over time, but these are three to six months exercises,” explains Michael Fuller, principal at The Hackett Group. “The goal is to think about how they might change the technology organizations holistically and consistently, making sure those investments are leaning out the base and creating flexibility.”
To get ahead of the pending economic outlook, IT leaders should consider making investments in the following areas, especially where such shifts can reap long-term operational benefits, recession or not.
Enabling better insight into costs and value
“IT leaders should maintain a deep understanding of their cost structure as well as the value that the IT services and investments provide to the organization as a whole,” says Patrick Anderson, director of technology, strategy, and architecture at global consulting firm Protiviti.
If you don’t already have this transparency and clarity, now is the time to invest in creating it, as doing so will enable you to make intelligent moves to free up costs or support additional investments.
Knowing how each aspect of the IT infrastructure supports the business is also critical. “In most organizations, this information is tribal knowledge and is not easy to access or action,” Anderson says.
Going cloud native
Boomi recently made the transition to a cloud-centric stack with investments in cloud-native applications and data integration tools. “We no longer rely on legacy solutions that require large teams and budgets or lots of manual work to implement changes or new integrations,” says Boomi CIO Neil Kole. “Our transformation initiative has resulted in high employee satisfaction scores, lower IT cost as a percentage of revenue, and faster ROI on our investments.”
Getting real with FinOps
CIOs looking to optimize their cloud costs can invest in FinOps to more accurately manage IT asset costs. FinOps is a business management discipline with accompanying analytics software designed to calculate cloud costs to help organizations better plan, budget, and forecast cloud consumption and spend. “This provides the transparency to better align your cloud spend with the business value being delivered and eliminate potential waste or misalignment,” says Protiviti’s Anderson.
Doubling down on agile
If you haven’t already invested in agile approaches, skills, and processes, let this downturn push you toward that change. “Creating an agile toolset can’t happen overnight,” says Kole of Boomi. “If your business hopes to stay resilient through a potential recession, now is the time to begin making that transformation.”
Embracing agile will enable IT to increase the frequency of business check-ins creating greater alignment with business priorities and direction. “It should be a requirement that an agile methodology is used to ensure effectiveness in a shifting environment,” says Eugene Kuerner, CTO at expense management software provider Center. “Increasing the frequency and depth of agile methodology during challenging times underlines connecting and executing to rapidly shifting business challenges.”
Collaborating and getting clarity
“The smartest step an organization can take is viewing it as an opportunity to embrace the downturn wave, and intentionally emerge from the recession stronger,” says Stanley Huang, co-founder and CTO at Moxo. “Organizations should take a step back and outline an overview of their organization’s current business situation — identifying cash-flow trends, and cost structure layout in as much detail as possible.”
Working closely with the executive team to map out that overview enables IT leaders to focus not just on blindly cutting costs but shifting spending. “Without a clarified company overview strategy, IT managers are more inclined to make ad-hoc decisions, whereas they should be spending the time on aligning IT goals with the overall business goals,” Huang says.
Upping the analytics ante
Want to make your finance organization happy? One of the better investments IT organizations can make now is in advanced business analytics and intelligence, giving the organization better tools to understand their own spend.
“Investing in more analytical capabilities, smarter reporting tools, and greater transparency around what’s being spent and why will enable smart CFOs to make better decisions,” says Pastore of the Hackett Group.
Accelerating efficiency plays
Getting ahead of the potential economic fallout is beneficial, and CIOs should push for and protect those projects that will increase efficiency and productivity. “Accelerating initiatives that would otherwise be at risk should be seriously considered,” says Erik Bailey, CIO at IP software and services company Anaqua. “Any initiative implemented now that reduces cost or increases efficiency will result in a better overall position if a downturn does impact the organization.”
The Hackett Group found that the highest performing 10% of IT functions automate 2.1 times more business processes than their peers. As a result, they achieve a 47% greater reduction in the cost to run and manage technology. Some functions ripe for greater automation ahead of recession include HR, finance, and IT itself.
“Any IT leaders concerned about a possible financial fallout due to recession should focus on implementing automation and low-code technologies to enable citizen developers and integrators within their organizations in order to free up their IT team members’ time for more impactful work,” says Boomi’s Kole.
Pursuing promising new technologies
Now is not the time to go into heads-down, defensive mode. CIOs and their teams should keep their eyes out for opportunities to invest in emerging technologies. “Pay close attention to emerging technologies,” advises Huang of Moxo, “keeping a pulse on technologies that can benefit your organization from an internal and external perspective.”
Reallocating operating savings
In a recession, IT’s operating costs may naturally go down. Smart CIOs will divert some of those idle operating costs to new initiatives rather than losing that money to another part of the business or banking it. “Divert that into infrastructure efficiency projects to accelerate existing projects,” says Pastore.
Budgeting, IT Leadership, IT Strategy
SoftBank Reports Record $23 Billion Quarterly Loss as Tech Downturn Hits
The Japanese technology investor suffered losses after holdings such as Uber and DoorDash lost value.
7 ways CIOs can curb costs before recession hits
If IT leaders aren’t already thinking about the impact of an economic recession, their CEOs certainly are. In fact, nearly 8 in 10 business leaders expect a recession in their primary region of operation within the next 12 to 18 months — or believe one is already under way, according to the Conference Board’s C-Suite Outlook Mid-Year. Among CEOs surveyed globally, 15% believe recession has already taken hold while another 61% expect a recession will arrive before the end of 2023.
“While recessions are inevitable, we never know when they will hit,” says Dan Roberts, president at Oullette & Associates and host of the CIO Whisperers podcast. “There is a tricky balancing act at play. C-suite leaders can’t hit the brakes and risk missing market opportunities. But on the flipside, if they continue to invest at the same levels and the economy tanks, they run the risk of spending getting out ahead of revenue.”
A decade on from the last recession, many CIOs have never had to lead their organizations through such economic challenges, Roberts points out. But they’ll be charged with cutting costs and building efficiencies to sustain their businesses through the cycle.
Companies underinvested in technology will be in the worst position. “They’ll have few choices but going into survival mode scavenging coins out of the sofa to save money,” says Peter Pisciotta, managing director and senior consultant at Fine Line Partners. “It’s not pretty.”
IT costs can account for a significant portion of operating expenses (SG&A) and capital investments, so when cost reduction is needed, IT can be at the top of the list for cuts.
“It is essential for IT leaders to have a plan,” says Patrick Anderson, director of technology, strategy, and architecture at global consulting firm Protiviti. “Without a plan from the IT leader, other leaders will step in and that could have devastating consequences.”
Budgeting, IT Leadership
Wolverine hits pause for cloud success
Sometimes — even in IT — slowing down can pay off big-time. For Wolverine Worldwide, COVID-19 proved the point.
While many companies accelerated their cloud migrations in response to the pandemic, the 140-year-old boot and shoe manufacturer halted much of its technology projects to focus on keeping the business afloat, a decision that left the company a bit behind where it wanted to be but better positioned to succeed, thanks to the availability of more advanced cloud services and tools to ease its transformation to a hybrid cloud infrastructure, says Wolverine CIO Dee Slater.
“When the pandemic hit, we took a bit of a pause,” Slater says. “Now we are well under way and really focused on modernizing the way we work, streamlining and simplifying work across platforms and having actionable data right at out fingertips.”
The Rockford, Mich.-based company best known for its boots and Hush Puppies, and more recently its acquisitions of the Merrell, Sperry, Saucony, and Sweaty Betty brands, originally launched its cloud journey in 2019.
But when COVID hit, the company faced several crises as it tried to keep its business flowing, and the cloud transformation got pushed back. “We had some tough decisions to make,” Slater says. “There was no playbook for this pandemic. We were just starting on our data journey.”
Prioritizing the supply chain
One such crisis centered on Wolverine’s supply chain. As was the case for most manufacturers, supply chain issues quickly materialized for Wolverine in the early days of the pandemic, with lead times for shoes doubling, in part because getting materials across borders had become arduous. This was especially challenging for Slater, who is not only Wolverine’s CIO but also its senior vice president of supply chain and shared services.
“It’s one of those CIO-plus roles that people talk about,” says Slater, who has served as CIO since 2006. “The plus part of my role includes logistics, distribution, trade compliance, or the movement of our goods, our contact centers, and our project management office.”
Wolverine’s footwear is sold in 170 countries and is manufactured in Vietnam, Indonesia, Hong Kong, and China. The company also operates distribution centers in California, Michigan, and Kentucky, and in Ontario, Canada.
Issues surrounding Wolverine’s global manufacturing and distribution footprint became instantly business critical. Vietnam, for instance, was closed for two months during the pandemic, Slater says. To optimize business on its re-opening, Wolverine IT built supply chain data models using Microsoft Power BI to prioritize which brands it should manufacture first once factories resumed operation.
Wolverine, which Slater says relies on SAP and Microsoft for its core infrastructure, is now “well along the journey in supply chain data” using SAP SAC analytics but has yet to embark on other aspects of its digital transformation, such as building a data lake and embracing AI, she says. Currently, Slater’s plan is to complete Wolverine’s hybrid cloud based on Microsoft Azure, which is now at the halfway mark.
Wolverine relies on seven data centers, two of which are run by third-party partners. The on-premises data center at its corporate headquarters connects to Azure and other public clouds, Slater says, adding that Wolverine has moved roughly 500 services from on-prem to the Azure cloud.
While the pandemic slowed down Wolverine’s hybrid cloud transformation, the abundance of new tools and programs now available to aid in migration is making the delay more palatable, she says. For example, Wolverine has signed on to Rise with SAP, a new SAP service that is minimizing the migration challenges of moving Wolverine’s on-premises SAP stack to Azure. The company is also using Azure Arc, a Microsoft cloud management tool that launched just months before the pandemic and now enables Wolverine to build applications that can run across data centers, edge, and multicloud environments.
Tools like Arc give Wolverine a “single pane of glass to manage its processes,” the CIO says. “When we talk about modernizing work at Wolverine, it does not happen with the flip of a switch. So we actually had to manage the combination of our on-premises legacy solutions, as we have our modern new ways of working in the cloud.”
Wolverine’s cloud push is largely about “getting our data in the cloud so we can connect in ways we have not done before, making that data even more powerful,” Slater says. To that end, the company plans to start creating a data lake in 2023, she says.
The manufacturer will also continue developing its SAP SAC analytics infrastructure and begin building machine learning models to generate insights and directives based on data that resides in the data lake, she says.
“Step one is streamlining and standardizing all the data so we have common process and practice that we can apply machine learning to, for example, and get rid of some of those mundane tasks as we build out our data lake,” Slater says. “We will then start applying AI to help inform, predict, and actually start making some of those decisions for us. We are not currently doing that.”
While the pandemic delay has increased the urge to move quickly now, Slater still wants to ensure new technologies, such as machine learning, are adopted in the appropriate manner. “We are not a software company. We’re a shoe company … buying a business process,” she says. “Keeping that in mind as we’re implementing it is critical.”
And if there’s anything Wolverine’s pandemic experience has enforced, it’s that technology can be a driver of business, but in the end, business needs come first.
“It’s about prioritizing which business solutions go first,” the CIO adds. “This pandemic has been a blessing and a curse — a curse for the obvious reasons, but the rapid adoption of technology has a lot of people knocking on my door ready to use systems and data. And it’s about prioritizing who goes first and in what order.”
That’s quite a cultural shift from just a few years ago when even IT staff were wary of change. Slater recalls the negative reaction employees had when the company initially brought Microsoft in for a three-day cloud certification class in 2017 — a perception the CIO was able to smooth over before Wolverine’s cloud project started.
The IT team was apprehensive because many thought moving to the cloud would eliminate their jobs.
“But by end of that session, everyone understood that this was the way of the future; this was going to allow us to scale up and scale down and be a great career path,” Slater says. “I’m happy to report that we’ve had minimal turnover because our team saw the vision. They’re sticking with us.”
In this way, the delay of the cloud migration during the pandemic actually helped with employee retention, the CIO maintains. It also helped the company attract additional talent, Slater says.
“Employees get excited to have a CEO who talks about technology and investing in technology and modernizing the work technologies,” she says. “Certainly, recruiting has its challenges, but I think we have an advantage versus our peers for both attracting and retaining employees” thanks to the company’s ongoing transformation, and the opportunities ahead.
Cloud Computing, Digital Transformation