As supply costs, energy bills, and the cost of talent are soaring, companies are doing what they can to keep their hands firmly in their pockets. Over the last few months, we’ve seen major companies implement mass redundancies across the tech sector. But at the same time, businesses have to continue spending in order to meet their customers' needs and innovate.
In a time when consumers are counting every penny, businesses are facing the difficult task of still needing to innovate and meet changing customer needs in order to stay competitive. But with budgets being cut and output under pressure to be increased when it is difficult to even maintain current levels, IT leaders are in a tight spot.
So, what can IT leaders do to ensure that their teams are performing optimally? And where can your tech teams look to reduce cost while also maximising output?
In this article, we’ll explore some of the ways that enterprise IT budgets are being affected by global economic conditions and what strategies you can put in place to continue to get the most out of your budget.
Where are IT departments seeing the greatest challenges?
IT is a core function in most enterprise businesses, so budgets in this area are unlikely to be slashed entirely. Gartner forecasts that worldwide IT spending will actually increase 5.1% in 2023. But it comes as no surprise that this is a smaller increase than many IT leaders were expecting - and hoping for.
There are numerous global economic factors impacting business budgets right now. From the war in Ukraine and rising energy costs, to the growing talent shortage. Leaders must examine carefully where their budgets can be best spent.
In response to current economic climates, organisations must look to technology as a way to increase output at lower cost. From increasing operational efficiency to cutting admin cost and even transforming your companies offering and client interactions, there are a lot of ways technology can help businesses come out of the economic downturn relatively unharmed.
But steady IT budgets are necessary to push these initiatives forward. As Gartner's report shows, there’s expected to be some increase in IT spending, but this doesn't mean IT teams are entirely safe.
Budget increases are less than many were expecting, and now leaders have to be conscious of the most effective ways to use their budgets.
Some of the major challenges to overcome include:
Balancing priorities in an uncertain economy
The continuing demand among enterprises to digitalise for growth is currently bumping into the need to contain expenses.
When looking at where to increase or maintain spending, versus where to cut it, the first question to ask yourself is: will these digital initiatives support the kind of financial impact my CEO wants?
You must also consider that the desired impact of these projects may have changed in response to recent economic conditions. Therefore, you need to reassess your spending on any major projects and review whether they are still aligned with business goals.
The tech skill shortage
The next challenge for enterprise IT leaders is talent acquisition. According to McKinsey’s IT strategy survey 2021, 47% of respondents are relying more on sourcing partners to supplement internal capabilities.
This is because of a global tech talent shortage. With talent being hard to come by, businesses are raising salaries and increasing benefits to attract staff. But in the current economic climate, IT leaders must determine whether this is a good use of their team's budget.
Some teams are also experiencing location constraints. While remote work is growing in popularity and allowing IT teams to search for talent in all corners of the globe, not every enterprise is embracing remote teams.
Some would still rather have on-site staff, which further limits their talent pool, especially if they are not located in a tech-hub area such as London, Munich, Bangalore, Silicon Valley, ect.
Ukraine, Russia, Belarus
With talent being a major obstacle for tech teams, many have been outsourcing functions within their team in order to compensate.
However, the outsourcing market has also been greatly disrupted this year – especially for tech teams in Europe.
Ukraine, Russia, and Belarus previously provided numerous outsourced IT teams that were helping enterprises deliver projects throughout Europe.
For many enterprises, the pool of skilled IT talent, close time zones, and high level of fluency in English in these nations made them ideal regions for outsourcing. More than one million IT professionals work in Ukraine, Belarus, and Russia, with 25% of those working for consulting or outsourcing firms.
Advanced technical education and government initiatives to build its population tech skills means that Ukraine particularly offers a large talent pool of developers that many enterprises were using before the war broke out. But with the current situation, the Ukrainian IT market in 2022 is forecast to fall by 44%.
When outsourcing to cut costs and mitigate the talent shortage, IT leaders must be aware of more than just the skilled developers in the region and also look at social, political, and economic factors too.
IT leaders need to be able to think long term when choosing the locations they outsource from. In the event of political or economic changes, you may suddenly need to halt operations in that region, causing work to be stalled and deadlines to be missed.
Where should IT leaders focus efforts and budgets?
While the challenges IT teams are facing are of high concern, there are also strategic ways you can navigate these challenges. By carefully focusing your IT budget on certain areas, you can continue to lead a productive team.
Demonstrate the business value of IT
The major priority for any IT leader in 2023 is demonstrating the value of your teams. You should focus on the outcomes and goals that your stakeholders and board members really care about.
Not only do you need to align IT with business goals, but you need to communicate how you are doing that in a way that your board members want to listen to. Telling a story that resonates with business leaders and ultimately supports their decision-making. If you’re only focusing on data related to project completion, tasks accomplished, or resources deployed, you’ll lose their interest. Instead, focus on communicating the outcomes delivered.
Can you use DevOps as the way to faster development?
According to a 2020 Atlassian survey, 99% of respondents agree DevOps has had a positive impact on their organisation. Perhaps it could have a positive impact on your IT team, too. When budgets are tight and efficiency is the object, DevOps is a logical path to explore.
An organisation using DevOps recognises the value of collaboration between teams at all stages of development. ORA’s State of DevOps 2019 found that elite practitioners release 208 times more frequently and 106 times faster than low-performing teams.
There are clear advantages to be seen from implementing DevOps, however, execution can be complex.
Through 2022, 75% of DevOps initiatives will fail to meet expectations due to issues related to organisational learning and change. So if you decide to shift to DevOps, you need to have a clear strategy in place with communication and learning at its centre.
Adopting the practice of DevOps requires a cultural shift in your team and your organisation as a whole which isn’t something to be implemented overnight. The ‘big-bang’ approach that some companies try (which involves launching DevOps in a single step) comes with a huge risk of failure, leading to wasted time and resources – the last thing you want.
DevOps involves too many variables for a big-bang approach to be successful, particularly for larger enterprises. IT leaders may have difficulty articulating the business value of this change to key executives and struggle to get buy-in from other areas of your organisation.
Recruitment can also be an issue, and not just in terms of a general skills shortage. If you’re dividing the DevOps function among multiple teams or individuals, each team’s responsibilities need to be explicitly clear to avoid overlap.
Which businesses are excelling at digital right now?
There are certainly challenges to face in 2023, but some businesses are seeing positive results from their digital initiatives despite this difficult climate. Let's take a look at some examples.
Pepsi recently developed an app that replaces manual processes and empowers employees to focus on what they do best: providing excellent customer service.
The app helped increase efficiency by looking at processes that once functioned, but don’t always scale well. Manual processes within the organisation had become increasingly inefficient and that was exacerbated by the emergence of Covid-19.
As a solution, Pepsi built a bespoke e-commerce platform that empowered its employees. The platform had to work seamlessly with its existing SAP solution so that existing operations weren’t hindered in any way.
Another great example of a successful digital initiative aligned with the changing business goals of its enterprise comes from LeviStrauss.
Over the past years, consumers have increasingly switched to e-Commerce channels and conducted more of their shopping online. To meet this changing customer demand, the company began fulfilling online orders not just with merchandise in fulfilment centres, but also from its stores.
Prior to the Covid-19 crisis, this kind of digital innovation would have taken months to work out the logistics for. But the pandemic presented an opportunity. As lockdown rolled out across the country, Levi’s was able to accomplish this shift in its fulfilment strategy in a matter of days.
It quickly launched curbside pickup at 80% of its roughly 200 US-based stores. It then also launched its mobile app, which the company leveraged in creative ways to connect with consumers during the pandemic. This helped the business mitigate the impact of less foot traffic in stores, while also building better customer relationships and positioning themselves well for the future.
It's not only e-commerce that is benefiting from app development and pushing ahead with digital initiatives. New York City–based commercial and residential real estate developer RXR Realty has seen tremendous success from its app launch.
RXR has a previously established digital lab and employs more than 100 data scientists, designers, and engineers across the organisation. One of its recent digital projects was to invest in an app that enables users to change scheduling, deliveries, dog walking, and rent payments on the residential side. On the commercial side, it provides real-time analytics on heating, cooling, and floor space optimization.
Today, the app development team is working around the clock to implement health and safety protocols that will ensure tenants feel safe as they return to the office.
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Alexandra is the Content Lead at Builder.ai. With 4+ years of experience across B2B tech marketing and SaaS solutions, Alexandra specialises in creating accessible AI and Machine Learning content for enterprise. She has a BA in English Literature and Creative Writing from Royal Holloway, University of London.