Tech Perspectives

The Consequences of Price Inflation for CIOs

How To Embrace IT’s Value and Adapt for Strength While Navigating Inflation
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As the old adage goes, “A smooth sea never made a skilled sailor.” Nowhere is this more evident than in today’s IT landscape. CIOs across the globe are grappling with a new, unexpected wave in their voyage – inflation. What makes this wave particularly unsettling is that it’s blowing up the cost of all IT services without offering additional value. This paradigm shift has put cost-efficiency on every IT leader’s radar.

However, a leaner IT function doesn’t necessarily equate to a downgrade. It means that IT must now be savvy – not just technologically, but also financially. This requires a strategic reevaluation and a sharper toolkit. With this in mind, let’s dive into a robust discussion on navigating the cost tide as it stands to meet the needs of the current business environment.

Acknowledging the Storm: Current Economic Climate

Globaly business revenue is set to decline due to macroeconomic factors and constricted consumer spending. IT budgets, which are often proportional to business revenue, will undoubtedly feel the pinch. The pressure will be on IT departments to ensure every dollar is spent wisely.

Meanwhile, staffing and labor shortages for IT talent have escalated due to the digital skills gap, an evolving job market and pandemic-related disruptions. This has further complicated the IT budgeting equation, causing CIOs to rethink their talent strategy.

On the supply front, IT hardware, often sourced globally, has been affected by supply chain difficulties. The resultant unpredictability in both cost and availability requires us to reframe our IT sourcing and inventory strategy.

These challenges are multi-faceted, but they’re not insurmountable. The need of the hour is to act decisively, recalibrating our approach to ensure cost-efficiency and value delivery.

Taking the Helm: Practical Steps for CIOs

The current inflation-driven wave can’t be ridden out by simply releasing water. Instead, it requires us to take decisive actions and steer the ship in a new direction. Below are some of the key steps that CIOs and IT managers can consider.

Committing to Clear Technical Debt

In the world of IT, technical debt can accumulate much like financial debt in the real world. It is the cost that companies pay for short-term technological fixes that, over time, require an increasing amount of work just to keep the systems running. When unaddressed, it can lead to increased costs, inefficiencies and ultimately reduced agility and innovation.

Today, more than ever, we need to start chipping away at these debts. In this challenging economic environment, the cost of servicing this debt becomes even more burdensome. Paying down technical debt isn’t an easy task – it requires a well-thought-out plan, which might involve revising outdated code, rearchitecting inefficient systems, or even investing in new technologies. However, the benefit lies in streamlined processes, reduced costs and increased operational efficiency, all crucial in the inflation-impacted business climate.

Right-Sizing Staffing: A Delicate Dance

In an inflation-driven world, staffing becomes a high-wire act. The goal here isn’t merely about finding the balance between overstaffing and understaffing, but about making strategic decisions on how to most efficiently deploy human resources.

Firstly, consider which skills are most needed for your department’s strategic initiatives and day-to-day operations. Are these skills available in-house, or do you need to recruit? Then, evaluate the cost-benefit of full-time employees, contract workers, outsourced teams, and automation solutions. Implementing automation for repetitive tasks, for example, can not only cut costs but also free up your talented IT professionals to focus on more value-added activities.

The labor shortages in the IT industry only amplify the need for a thoughtful and strategic approach to staffing. By right-sizing your team, you can maximize output while keeping costs under control.

For more on this, please see the earlier blog post, Winning The War For Talent With IT Service Cost Management.

Adopting a Mature IT Budgeting Approach

Now more than ever, a mature and nimble IT budgeting process is crucial. Traditionally, IT budgets have been a once-a-year event, often rigid and slow to respond to changing business needs. However, the current economic climate calls for a more agile approach.

Incorporate frequent budget reviews, allowing adjustments in response to changing business conditions and IT demands. Cultivate transparency and communication about the budget within your team and across departments. Moreover, every line item on the budget should clearly tie back to the value it delivers. This means moving beyond the cost-center mindset and communicating IT’s contribution to business goals.

Regular Benchmarking: Keeping a Finger on the Pulse

Regular benchmarking of your IT costs against industry standards is a critical part of maintaining cost efficiency. It allows you to identify areas where costs may have inflated beyond the norm and provides a basis for understanding whether your spending aligns with the value you’re providing.

A good sailor knows the importance of regular checks on the ship’s position. In the world of IT, this is similar to benchmarking. Regular benchmarking of your IT costs against industry standards can serve as a navigational beacon, helping you chart the course towards cost efficiency and maximum value delivery.

At its core, benchmarking is a method of comparing your costs, processes and performance metrics to those of other businesses, for example the industry leaders or direct competitors. But it’s not just about numbers. It’s about understanding what the best practices are, what strategies are yielding results and how you can adapt these insights to your own organization’s context.

The fast-paced and dynamic nature of the IT sector makes regular benchmarking a necessity. It’s not enough to benchmark once and then forget about it. IT costs, influenced by factors such as new technological developments, market competition and regulatory changes, can fluctuate. Regular benchmarking ensures you’re  steering your ship by current coordinates.

While cost is a significant element in benchmarking, it’s essential to remember that it’s not only about finding the cheapest way to do things. The ultimate goal is to maximize the value your IT department delivers. This means benchmarking should also cover aspects like service quality, process efficiency and innovation capability. This comprehensive approach provides a fuller picture, guiding the effective allocation of resources.

Benchmarking in Practice

Benchmarking can take different forms, each offering unique insights. Cost benchmarking allows you to identify the cost level of your IT department. Price benchmarking helps you understand how competitive and healthy your key contracts are. Functional benchmarking compares your operations with those of industry leaders, even from different sectors.

Moreover, strategic benchmarking allows you to examine how other organizations achieve their business success. It’s about analyzing the big-picture strategies and the long-term vision. Given the integral role IT plays in business success, strategic benchmarking can offer invaluable insights.

Embracing benchmarking requires a certain mindset. It’s about acknowledging that there are lessons to be learned from others, about being open to change and about striving for continuous improvement. Developing this mindset within your team and promoting a culture of learning can truly harness the power of benchmarking.

In conclusion, benchmarking, when done regularly and comprehensively, provides a realistic and fact-based perspective on your IT costs and performance. It’s an essential tool in your arsenal to navigate the inflation-induced wave, keeping your IT department not just afloat, but sailing smoothly towards its destination.

Navigating the Waters Ahead

These strategies are not just about surviving the wave of inflation. They are about adapting to new realities, steering the ship in a new direction and ultimately coming out stronger on the other side. Yes, cost-efficiency is critical, but let’s not forget the value that IT brings to the table. The role of IT leaders now is not only to control the costs but also to emphasize and enhance this value. Embrace the challenge and navigate the seas of change with confidence and foresight.

Interested to learn how the cost efficiencies of your internal technology services stack up against peer organizations? Visit our website for more information on our IT benchmarking service, IT Service Cost Management.

Diederik is an experienced IT management consultant specialized in benchmarking and information management. For IDC Metri, Diederik is active in the fields of benchmarking, sourcing and management consulting. By combining the functional and the technical, Diederik is able to help IT managers make the right decisions through benchmarks and detailed analyses.