November 15, 2022

Article
4 min

How Tech Spend Can Mitigate the Impact of Inflation Over Time

3 Keys to Prioritize Digital Transformation Budgets and Stay Competitive

This September inflation hit a 40-year high. While its impact on grocery bills and gas prices has been the talk around kitchen tables and board rooms alike, it’s no secret in server rooms that inflation is also bearing down to reduce advances in digital technology. 

Why continue Digital Acceleration in an economic downturn?

IT budgets skyrocketed in 2020 when employees were forced to work remotely. Conventional wisdom might have one believe that in the face of inflation it’s now time to scale back after two years of increased spending on the cloud, hardware, and software-as-a-service (Saas). Conventional wisdom would be wrong. In fact, the investments are just getting started. According to a survey conducted by Omdia, a tech research firm, most organization’s digital transformation efforts are a work in progress. That explains why Gartner is predicting worldwide IT spending will increase 5.1% in 2023.  

We’ve entered a new era, where consumers rely heavily on technology to interface with organizations before, during and after the purchase of products and services. Organizations will need to step up their spending to not only offer a digital experience…but also enhance it. The systems cobbled together quickly to keep operations running during a pandemic won’t cut it as emerging technologies scale precipitously.

“Organizations that do not invest in the short term will likely fall behind in the medium term and risk not being around in the long term,” posits John-David Lovelock, distinguished research vice president at Gartner.

But investments need to be strategic. In 2023, spending on Data Centers, Software, IT services and Communication services will increase, while devices will decrease, according to Gartner forecasts. The Cloud—and all its software-as-a-service (SaaS) applications, Internet of things innovations, and data storage strategies—will carry the weight of tech spend and investments in 2023 as evidenced by Gartner’s predicted 11.3% growth in software.  

Even with this insight, how do IT decision makers know which projects to green light, and which ones to hold for later considering the impact of inflation, an eminent recession (unless interest rates decrease), and supply chain constraints? Here are three recommendations for making the most of your 2023 IT spending. 

Worldwide IT Spending Forecast (Millions of U.S. Dollars)

2021 Spending 2021 Growth (%) 2022 Spending 2022 Growth (%) 2023 Spending 2023 Growth (%)
Data Center Systems 189,506 6.1 209,190 10.4 216,262 3.4
Software 732,030 14.8 790,385 8.0 879,625 11.3
Devices 807,580 15.8 739,982 -8.4 735,394 -0.6
IT Services 1,207,966 12.8 1,258,150 4.2 1,357,914 7.9
Communications Services 1,459,483 3.8 1,435,401 -1.7 1,469,220 2.4
Overall IT 4,396,565 10.2 4,433,108 0.8 4,658,416 5.1

 

Source: Gartner (October 2022)

1. Increase budgets, mitigate risks

Don’t slow IT spending or be deterred by talks of recession and inflation. Your peers aren’t. In fact, a July 2022 Gartner survey of more than 200 CFOs found 98% of respondents saying they will protect digital investments and of those, 66% stating they plan to increase their investments in the category.

This means that despite recession and inflation, most organizations are going to be in a growth phase. The question though is, ‘how will that growth occur?’ and ‘how will it get funded?’

One way to save money is by moving operations to the cloud and adopting subscription products to lower high upfront costs that are buoyed by inflation. For example, many CIOs are transitioning away from an ownership on-prem model to software-as-a-service for everything from collaboration tools to security systems. In July, Gartner forecasted cloud spending would reach an expected growth of 22.1% in 2022.

And even though spending on devices is declining compared to last year, it is still in line with (if not exceeding) expected pre-pandemic growth. Indeed, customers are deferring to make device purchases, but companies are also building, composing and assembling technology to meet specific business drivers, Lovelock ventures.

Also, organizations will need to be vigilant about preventing security breaches. The cost of breaches to an organization could amount to an average of US$ 3.6 million per incident in 2022, according to data collected by the World Economic Forum. CDW partner Proofpoint predicts that the supply chain will be increasingly attacked in 2023, potentially increasing the costs of a breach. To deter threat actors, implement an Identity Access Management framework by defining identities, instituting data governance processes, implementing multifactor authentication and training employees about password hygiene. This will help prevent data breaches which will save you money in the short and long run.

2. Invest in talent and automation

There is conflicting information about demand for skilled workers in the IT field. Employment projections for Computer Systems Design and related services will increase almost 20 percent by 2031, according to the Bureau of Labor Statistics. Yet, Gartner predicts that the critical IT skills shortage being felt across the globe will abate by the end of 2023. Nevertheless, building the best bench possible will be critical in 2023. A new analysis of CompTIA data shows there is high demand for workers in areas such as software development and engineering, IT support, IT project management, systems engineering, and network engineering.

What does this mean for your IT workforce investments at the top of the year? Focus on retention. Earlier this year a Gartner survey of IT workers found that only 29 percent of IT workers had a high intent to stay with their current employer. As a result of the new “worker’s renaissance”—employees feeling empowered to choose work that prioritizes their career goals and personal well-being—it is more important than ever to continue prioritizing professional development for IT workers via upskilling and reskilling of existing staff. Additionally, encourage a culture of continuous improvement and implement decentralized teams who conduct autonomous workflows. This will help teams to easily scale, increase efficiency and reduce workloads.

Of course, not every position can be filled from within. But hiring new skilled workers from outside of the company at this point in history will come at significant costs. Don’t underrate the intrinsic value of those already on staff. Oftentimes institutional knowledge about how an organization arrived at current processes, why roadmaps diverged from former goals, and what customers value about the company are already embedded in experienced employees who have stakes in your company’s success. Identify tactics to keep them engaged in your organization’s vision for the future by being transparent about how their current responsibilities roll up into your intended business outcomes.

3. Explore third-party services

Even if an organization invests in their current IT workforce, the skilled labor shortage still puts a damper on digital transformation plans. That’s why investing in external experts via professional services and outsourcing infrastructure upkeep to a third-party managed services vendor will be a game changer for organizations that want to innovate and disrupt their industries.

Gartner forecasts that spending on IT Services will increase 7.9% in 2023. During this time of uncertainty, organizations will need to stay current about business trends and market conditions all while setting the stage to nimbly move in accordance with such conditions. That’s when Professional Services are most beneficial. Organizations that lack a complete IT leadership team can supplement their current workforce with trusted third-party advisors like those at CDW.

In a skilled labor shortage, a third-party vendor with deep partner relationships and years of expertise across the full technology stack can offer guidance and even design and orchestrate a solution for your organization based on your long-term goals at a fraction of the cost it would take for an organization to build from scratch.

Managed Services on the other hand will free your in-house IT leadership team to focus on your core mission and innovative strategies and feel confident that commodity infrastructure, routine migrations, day-to-day operations and security solutions are solidly supported by the vendor. 

Don’t turn back now

Keeping your IT budget flat in 2023 will impede your progress as industry competitors race to hire top talent, complete digital transformation projects, and redefine industry expectations in their favor. Spending projections from Gartner, Forrester, and IDC all indicate that IT spending will not slow down, and organizations that don’t invest wisely will suffer; as will their customers. However, organizations that start early, increase tech investments and seek expert support are prepared to take the lead and amass customer loyalty and industry recognition.