Four Ways CIOs Can Minimise Costs to Recession-Proof Their Business

A recession is around the corner. Almost eight out of ten CEOs expect a recession within the next 12 to 18 months in their region of operations. A recent Deloitte survey reveals nearly 50% of CFOs expect the US economy to be in recession in 2022. Almost four out of ten CFOs also believe the economy will be in stagflation by the end of 2022. But it is impossible to predict when a recession will hit, and things will go downhill suddenly. Businesses that hit the brakes in anticipation of a recession that may not come at the expected time miss big opportunities. But those who continue to spend unhindered risk severe losses. IT costs take up a significant portion of operating expenses and capital investments in most enterprises. Smart CIOs walk the tightrope well. They take proactive steps to keep their costs in control and build efficiencies so that their enterprises can tide over the tough times. They can also position their enterprises for recovery and growth in future. Here are four ways CIOs can work in such a direction.

1. Target IT running costs

Any enterprise has several IT- related operational costs. Each asset or process which incurs running costs may have been essential when first launched. But over time, many of such costs might turn out to be unnecessary. A looming recession is an excellent time to do a comprehensive audit and identify such avoidable costs.

Top CIOs develop a holistic approach to cost reduction. They identify all cost control opportunities upfront and prioritise them based on need and the cut’s impact on the business. They remain prepared to make decisions aligned with business strategies and objectives.

Establish a baseline of IT costs and identify how each cost adds value to the enterprise. Also, determine the extent to which each cost scale up or down with demand.
Identify the basic minimum services and capabilities needed to keep operations afloat. Empirical evidence suggests that the bare minimum approach delivers a 30% cost reduction.
Identify services that deliver marginal value. Determine if cutting down such services would have any determinable long-term impact. Close down services that will not impact the enterprise in the long run. Some processes that seem indispensable include running multiple devices and generating outdated reports.

While on a cost-cutting, make sure not to target essential services. Some services may not add value but cause great harm if discontinued. For instance, enterprises cannot afford to neglect network security. Any compromise on security to save costs may cause a cyber attack and sound the death knell of the business.

2. Rejig the hardware

The hassles associated with change often make CIOs run the existing hardware stack unhindered. A looming recession is a right time to relook at the hardware assets of the enterprise.

Decommission old, inefficient and low-use hardware. Many enterprises set up hardware for specific use and forget about it. Over time, the network gets saddled with several low-usage systems.
Consolidate and rationalise hardware are software assets. The trick lies in intelligent cost management. Make sure the consolidation and rationalisation make financial sense. For instance, decommissioning something that’s still depreciating does not make sense.
Target redundant systems. Take risks to shut down redundant systems and see if anyone complains.
Migrate to the cloud early. The cloud makes sense at all times and more so during a recession. Setting up an on-premises infrastructure is capital-intensive. On-premises also incur significant operating expenses. With the cloud, the costs shift from capital expenses to operational costs. The operational costs depend on usage. Such costs become more manageable and attributable to specific services. A 2022 Hackett group report estimates enterprises that migrate workloads to the cloud save up to 3x compared to slow movers.
Reduce on-site support. IT costs reduce by as much as 20% by shifting from on-site to remote support, limiting day-to-day demand for maintenance service.

At times, new hardware becomes inevitable as the old hardware no longer works. Limit purchases only in cases of exigency or the benefits of new hardware are too huge to ignore.

3. Press pause on low-priority projects

Cash is always the king, more so during recessionary times. Most enterprises have several IT projects running at any time. Abandoning or delaying some fixed capital-intensive expenses offers the company much-needed liquidity.

CIOs need to:

Prioritise ongoing projects. Continue with the critical investments that will help the company during the recession. But delay other low-impact projects. Companies underinvested in technology will be worse off when the recession strikes. But wait until the good times come back to opt for general hardware upgrades or to add “bells and whistles” to the enterprise stack.
Re-evaluate project portfolio to ensure everything still aligns with business strategy. A periodic evaluation is anyway necessary for today’s volatile business environment. Rapid changes in external environments make many projects redundant even before it takes off.

4. Reassess IT service contracts

Many times, service contracts renew automatically, without reassessment. A looming recession is a good time for CIOs to examine and optimise service contracts.

Identify new partners who deliver better value. For instance, take recourse to outsource to migrate more work to lower-cost locations.
Retain partners and service providers who deliver business value. Quantify the value addition wherever possible. But remember that it is impossible to quantify everything, especially the indirect benefits of a service.
Reassess the vendors and partners for their financial strength. The recession can hit vendors hard as well. A financial crisis at their end could lead to poor performance or quality degradation.
Work with partners to reduce costs. Explore opportunities for reducing supplier obligations. Accept workarounds to establish a win-win solution with the partner. The partners, themselves engulfed in recession, would be in a better position to identify cost-cutting ways.
Limit unit costs instead of seeking discounts. Asking partners for price concessions may not work, as partners also remain stressed during a recession. Instead of asking for discounts, a good strategy is to reduce unit costs by rationalising the units used. For instance, negotiate with the vendor to reduce the number of paid software licenses.
Limit hiring. In today’s age of talent crunch, many CIOs have several open job openings and backlogs in hiring. Revisit such open positions and freeze hiring to the extent possible.

Here are five additional evergreen cost cutting techniques that help enterprises.

Cost cutting is inevitable to tide over the recession. But it is important not to panic and resort to indiscriminate cuts. Some cuts may deliver short-term benefits but harm the enterprise in the long run. Surviving the recession requires a well-thought-out strategy and starting the plan early. Thinking about cutting costs after the recession starts will be akin to starting digging a well when thirsty.

Durjoy

Durjoy is a hands-on expert in Software Automation, Infrastructure and Fintech at DigiLeap Technologies, a specialist solutions provider for Chatbots, RPA, Process Automation and Financial Compliance. He has previously worked in the mobile payments sector and before that has had a long stint at Citibank across multiple roles in their operations and technology division. He loves picking on business processes in various sectors and transforming them through automation. Durjoy can be contacted at durjoyb@digileap.net.