Although the annual U.S. inflation rate for the last 12 months was 6.5% and continues affecting consumer purchasing power, Gartner reports that IT spending remains recession-proof.
The tech research and consulting firm projects IT spending to reach $4.5 trillion this year – a 2.4% increase from 2022 – and the software and IT services segments to increase 9.3% and 5.5%, respectively, even with layoffs taking place at many B2C companies and despite a worldwide economic slowdown.
Since technology helps companies navigate challenging times, CTOs or CIOs shouldn’t cut their IT budgets. Even amid economic uncertainty. Digital technology is necessary to keep up with the competition and helps organizations differentiate themselves. It has proven its value, helping companies navigate challenging times – think how the cloud made remote work possible during the height of the pandemic. Here are five IT budgeting and spending approaches to consider for 2023.
- Align the budget with organizational strategy
Once IT initiatives have been assessed and included in the budget, pause and look at the big picture. Make sure the proposed IT spending aligns with your company’s strategic goals. If not, reconsider the allocation.
Budget allocation reviews should be done periodically throughout the year. With agile methodologies providing much quicker insight into IT initiatives, it’s important to be more agile as the competitive landscape is constantly changing. Capital allocation is not just an annual exercise, it should be consistently reviewed.
Will it help the company run smoother on a daily basis or reduce operational risk? Can it help the company grow and reach new prospects or satisfy current customers better? Often during economic uncertainty, digital transformation plans are put on hold. But remember, they are part of a company’s long-term health and can give you a leg up on competitors.
- Balance tech investments
Technology, while important, isn’t the be-all and end-all solution to every challenge. Not every problem needs a huge tech investment. Sometimes less is more. Simpler, smaller tech processes and policies can complement a big tech platform you already own.
What’s important is to have a suite of solutions that deliver required business outcomes faster and support a larger digital transformation initiative.
- Allow for wiggle room
IT budgets allocate money toward IT programs – everything from hardware leases to licenses and subscriptions to staffing expenses. However, they should be alterable when needed. What if a major system goes down or a black swan event calls for more IT spending?
The only constant in life is change, so unchangeable IT budgets aren’t always practical or feasible. That’s not to say they’re a blank slate, either, as long as IT funding is spent prudently.
- Rethink the why and the value behind the buy
Before investing in technology, identify how it will improve the business. Will it better support customers? Enable your company to do more with fewer people? Drive organizational efficiency so you can respond to market needs quicker?
If the potential outcome is unclear, shelve the purchase and have your IT procurement team do more homework.
- Connect the employee-tech dots
Many people are naturally averse to change. Some could respond with fear or denial and not use new IT tools while others will embrace them. Be clear about how new tech will help improve their daily activities, make their work more efficient or increase the customer experience.
Give them the training to use the tools successfully, but also point out the rewards and how it will enrich not only their work but the organization’s outcome.
Macroeconomics in 2023 are unclear. Although inflation is cooling, it’s higher than this time last year. The U.S. Federal Reserve (the Fed) continues raising interest rates – bringing them to between 4.5% and 4.75%, after hovering around zero at the beginning of 2022.
Although companies are understandably tightening their belts, it’s no time to cut on IT spending. Digital investments can help organizations muddle through uncertainty.
As Amazon founder Jeff Bezos once said: “In today’s era of volatility, there is no other way but to re-invent.”
Technology can help do just that.