Budget cuts are here, and with it, IT spend is under the spotlight.
Two-thirds of executives surveyed plan to cut costs over the next year, according to Deloitte's "Save-to-Thrive" report. Two-thirds of companies have cost reduction targets that exceed 10%.
That means every dollar cut from or spent on IT is crucial. "The budget traps that exist now are the same ones that have always been there," says Chris Murphy, CEO of ThoughtWorks' North American business. With a recession, "the consequences of the mistakes now are exposed more than ever."
Here are four common spending traps CIOs should watch out for:
Trap 1: Building tech debt
While keeping the lights on is important, forgetting to "modernize the tech space" can pull organizations down, right when they need to compete for customers, said Murphy.
That's because organizations can compile tech debt, where it becomes more difficult and expensive to keep legacy systems running. Accumulating tech debt also means organizations will need to spend more to upgrade when those systems no longer work or are so slow or clunky that they start shedding customers.
Enterprises that had already addressed tech debt pre-pandemic rose to the occasion, he said. Grocery stores that had modernized their infrastructure, from their online platforms to warehouse supply chain technology, were able to meet demand for delivery in March and April. They either kept customers or scooped them up from competitors who were not able to pivot as quickly.
"That failure or inability to invest in upgrading and modernizing technology and then paying down that debt is having some substantial impacts on companies across many industries at the moment," he said.
Making these investments now, even when budgets are tight, can allow an organization to be more flexible to meet shifting customer demand, and move past competitors, especially when the economy recovers.
Trap 2: Not knowing your IT cost structure
It's easy to spend too much without a clear view of where money is going. CIOs could make "potentially incorrect decisions if you don't have a good sense of what does the lay of the land look like," said Jagjeet Gill, technology strategy and spend optimization leader at Deloitte.
This is especially true for companies that make quick transitions to cloud during the pandemic. Without knowing how the cloud is being used, organizations could pay for things they aren't actually using. For example, if a developer is working in the cloud but doesn't ever log out, the meter keeps running.
Gill sees it like switching on a water tap and leaving it on.
"Water is draining out but you forgot to turn it off," he said. Having better knowledge of those cost structures, and who is using what and when, can let CIOs turn off the tap, and funnel the saved money into projects that add value.
Trap 3: Letting CFOs dictate spend
If CIOs are not working hand in hand with CFOs, CFOs can make decisions that don't match the reality of how IT works, and be detrimental to the company's future.
That sometimes happens when CFOs use benchmarks only in making decisions, said Gill. CFOs may see that their company's IT spend is higher than their peers and decide to cut IT's budget "without understanding that IT cost is driven by the type of business needs and the type of technology environment you're enabling," he said. "Having a holistic view of your total cost of ownership is very critical before you make a random decision just because we're higher than the benchmark."
While pushing the C-suite to place more value on the CIO role may feel akin to Sisyphus pushing the boulder up the same hill over and over again, it's one worth doing, especially right now, Gill said.
CFOs are "not necessarily thinking about IT spend in alignment with what value will be generated from a business standpoint," he said. Forcing that discussion now can help IT leaders trying to do more with less, and put the entire business on steadier ground during the recession, and in a better position after it.
Trap 4: Cutting customer costs
Cutting back on services for customers can make them leave for organizations that are putting more focus on them right now.
"There's a lot of suffering, uncertainty and angst in these times," said Murphy. "These businesses that are able to help their customers reduce angst through an easy, frictionless experience are likely to build more brand loyalty more than ever."
For example, enterprises that make sure customers can reach them effortlessly, instead of putting them into complicated phone trees or making them wait for hours for help, are more likely to keep those customers.
Murphy works with companies in the travel industry, which has been decimated during the pandemic. "Yet we're seeing a number of travel companies investing and thinking about how do they use this time to rethink their customer journey? How can they use this as a time to rebuild? When customers start coming back in volume, they'll be in an incredibly competitive position."