Managing Inflation and Recession Preparation – IDC Digital Leadership Community

By | August 24, 2022

IDC’s Digital Leadership Community (DLC) July 2022 session was much more positive than I expected. The participants were very open about their experiences and plans and it was really amazing to be part of a discussion that focused on field ‘war stories’ and great suggestions for action plans.

Inflation is making the war for talent harder and affecting the wages of new hires. One member talked about their finance department and told them that when the recession hits, salaries go down. But will it really happen? One CIO told us this was the case in Israel, where the crash in the startup market eased the situation a few months ago when requests for a 30%-50% increase came in. This could be a sign that the overheating in the wage space is easing somewhat due to recessionary pressures.

Nevertheless, IT skills are in high demand and will remain so. This is backed up by research from IDC, which says the gap in available skills is still widening in all markets. A potential source of conflict among employees is the widening wage gap between new hires and incumbents due to the need to pay new hires more due to inflation. One company in a market hit by hyperinflation says it will review salaries every six months to stem the tide and ease the pain in its IT workforce. Proactively offering salary increases to retain IT talent was discussed.

As expected, the consensus was that inflation was hitting opex contracts the hardest, but there were also warnings from participants that negotiations across the group were becoming more difficult as suppliers grappled with rising costs. Many supply companies are trying to raise prices to adjust to higher costs (including energy costs). One CIO spoke of SD-WAN contract negotiations where he saw clauses in the contract to provide price flexibility between now and the actual signing. It was the first time he had seen such a point. The consensus is “be prepared to leave your major suppliers if they keep holding a gun to your head.”

All participants agreed to expect more difficult discussions with vendors before the end of the year. These discussions will have a big impact on the creation of the IT budget in October. For some with contracts of more than 10 years, vendors are now asking for additional clauses to allow flexibility on pricing.

A positive note was raised by the CIO from Turkey, which currently stands at 78% inflation. He said that they are used to inflation. “It makes us more flexible,” he said. They focus on fixed payment contracts and projects to try to shift inflation risk to suppliers. They are also moving to cheaper or free products — they used to use MS SQL, for example, and are now moving to NoSQL and alternatives. He also said, “High inflation makes business dynamic.” His organization is consolidating IT across an international group and plans to outsource most of its IT operations from Turkey because wages are so low there that it reduces the costs of operations in other countries. In fact, inflation is a challenge for CIOs, but also an opportunity.

One participant – who had just completed the budget – said that their budget was agreed with less discussion than before because the finance department was aware of rising inflation. For now, the company can provide prices to the market. As a distributor, you can benefit from inflation. IT also offered a special calculation tool for cost optimization for the distribution business unit. The participants pointed out that the price increase is even sharper due to the strengthening of the dollar and the change in the dollar-euro exchange rate.

Participants also discussed deciding which projects to postpone. A number of participants said they were looking for more ROI than usual, in fact looking harder than usual, and IT decided together with the business which projects had the fastest return. A participant said his organization is keeping IT “on the job” to delay the transition to opex. Others have outsourced to save money by avoiding upfront investment.

Will there be a big drop in IT budgets with the expected recession? No one expected a big drop on the call. The recommendation of the participants was to slow down strategic projects with long payback periods (three to five years), and many have already done so. I was wondering if anyone expects the budgeting to be dynamic/frequent. The group’s response was, “No, not really.” One attendee noted that their cloud/FinOps team is looking to forecast cloud costs more frequently to avoid unexpected costs, and suggested seeking AWS and MS support for this. Some suggested doing this assessment monthly and having the IT team support the finance team for this. The need to educate the executive board about cloud cost volatility was also noted.

For some participants, the cost of energy is a deciding factor. In some industries, businesses plan for scenarios based on different exchange rate outcomes and energy price thresholds.

The meeting ended with surprising positive mood of the participants. It’s good to see the Digital Leadership Community coming together to help each other in times of need. We look forward to having you join us at our next meeting. If you’d like to join the DLC board for this quarter and add comments or read IDC research, please do so here.

If you have received invitations to our sessions, I hope to see you there. Email Mark Dowd if you would like to join the community (mdowd@idc.com).

IDC Digital Leadership Community – Think Tank Theme August 2022

Brainstorming

Thursday, August 25, 2022 at 17:00 CET

Sometimes doing something unexpected can really pay off. This is as true for being a Digital Leader as it is for disruptive innovation.

In this light-hearted but serious session, we’ll look at the “hacks” and experiences we’ll share. We tackle topics in all areas, from leadership ‘skills we’ve seen’ to unconventional policies that work.

At the session you can expect:

  • Funny anecdotes with deeper meaning
  • Car accident policies and how to avoid them
  • The heroes of digital leadership and why we think they are great

We hope you will join us. Please feel free to suggest digital leads that could benefit from these discussions.

https://www.idc.com/eu/digital-leadership-advisory

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