Melissa Parrish and Ian Jacobs
Ashley Villareal, Taylor Hansen, and Rachel Birrell
Smart Digital Investments Are Key, Especially In A Recession
If the pandemic taught businesses anything, it’s that the right digital investments — implemented quickly and iterated often — can keep a company running in the toughest of times. Banking behemoth Bank of America had been ramping up its digital investments before the pandemic. But the pandemic put those investments into overdrive, with notable results: 70% of its customers actively use its digital platforms, and the bank now sells more through its digital channels than it does in person. Some brands learned that these digital innovations can even put them ahead of competitors in ways they never planned or imagined. When online learning platform Skillshare saw spikes in interest in mental health and well-being content during the pandemic, it shifted its messaging and talent recruitment toward these topics. The result: A major growth spurt. With a possible recession on the horizon, digital business leaders are about to have another moment to shine.
Invest In Digital Technology And Talent For Effective Recession Budget Management
As digital business leaders, you’re responsible for a revenue-generating department, not a cost center. That means investments that improve your digital business efficiency and maintain your department’s effectiveness will have a positive impact on your firm’s bottom line while other leaders may struggle. In 2023, invest in:
- A dedicated software-as-a-service (SaaS) order management system (OMS). Consumers expect retailers to tell them what is available in nearby stores or ready for shipping now. They want to know when orders will arrive before they commit. You must expose inventory availability and order-routing logic in real time during the most delicate moment in the shopping process: add to cart. Used strategically, that logic prioritizes inventory at the greatest risk of markdown, minimizes split shipments or long-distance shipping, and enables digital businesses to protect already-thin margins. Back-office systems can’t create the milliseconds-fast response that enables these near-real-time calculations; enter a SaaS-based OMS.
- Customer analytics technologies. Just like businesses, customers will shift their priorities and budgets as the economic outlook becomes clearer. You can’t deliver real-time digital experiences that drive growth without knowing your customers’ near-real-time needs and behaviors. Customer analytics technologies will transform your data into customer-focused actions to help you create business value at every stage of the customer lifecycle.
- Talent retention. The “Great Resignation” may be mostly hype, but job-hopping in the digital world is real and makes sense: The best digital hires, regardless of role, expect the company they work for to deliver the tools and technology that allow them to work anywhere, anytime — in addition to a competitive salary and benefits. You might not be able to throw huge amounts of money at the problem like Amazon did, so consider the other employee experience levers you might pull, such as anywhere work, career growth, and work/life balance.
Decrease Investment In Highly Speculative Innovation
Depending on your company, nearly everything you do in digital may be considered an innovation — and we’re not talking about divesting from the meat-and-potatoes strategies and programs that drive digital revenue. But as the digital leader, you’re likely also responsible for exploring the vast array of consumer-facing emerging technologies and testing strategies and experiences for the distant future. Those are the places you should look for budget savings this year. Reduce spend on:
- “Innovation theater” shiny objects. Maintaining your successful AI-powered chatbots? Cool. Figuring out how to sell physical goods in the metaverse? Not so cool — at least not now. There will come a time when edge-case extended reality (XR) scenarios and trendy innovations like NFTs will be a smart way to spend your money again. But building new experiences that meet your customers’ immediate needs and iterating your existing offerings is where the smart money is in a looming recession.
- Third-party innovation incubators. Some digital business leaders outsource all innovation activity to third parties. These partners uncover and build immediately useful innovations, such as a novel payment solution or a new customer service front end. Spending on these relationships tends to have a positive ROI. However, if you pull back on that spend and instead free up your own employees’ time to tackle these kinds of innovations, you’ll solve two problems at once: freeing up budget and providing a creative outlet that will help you retain talent.
- Technologies where digital isn’t the right solution anyway. As digital leaders, you often find more efficient ways to meet customer needs by replacing traditional experiences with digital ones. But customers sometimes prefer the traditional way of doing things. For example, Forrester’s 2022 data shows that 66% of US online adults would prefer to work with a financial professional to create a financial plan, 71% to get financial advice, and 72% to work on estate planning. If you’re in financial services and you’re working on digital solutions for these areas, you can safely put them on hold. If you’re in another industry, make sure the digital experiences that you’re working on are ones that your customers actually want.
Increase And Defend Investments That Drive Long-Term Value
No matter what happens in the broader economy or in your sector in 2023, the need to rapidly translate technology decisions into business value has never been more important — e.g., when during the pandemic, Verizon Business took only four months to launch a digital solution that allowed new business customers to purchase wireless devices entirely online. To get it right in 2023, technology executives must keep their company’s customers’ needs and expectations central, aligning technology investments with the same risk and opportunity calculus as the business itself. Use the 2023 planning cycle to strengthen the continuity between tech investments and strategic business objectives. To do so, increase and defend budget for:
- Infrastructure and apps tied directly to revenue generating opportunities. As organizations break out of traditional IT models, they expect their tech execs to take a stake and partner with business leadership to align tech strategies with the delivery of long-term customer value. For 2023, tech execs should accelerate tech spend toward cloud platforms, value-driven practices, and carefully selected strategic partners. This will enable your organization to adapt quickly to address rapidly emerging business opportunities or to recover from unexpected crises. Focus funding on areas where technology dependencies affect customer touchpoints the most. Allocate these investments to modernize infrastructure and the application portfolio directly linked to customer-facing business services.
- CX and employee productivity capabilities. Use the critical business capabilities as your guide, linking funding for tech initiatives with strategic business outcomes. According to Forrester’s 2022 data, 46% of business and technology professionals at future fit organizations see linking investment initiatives to strategic business objectives as a critical priority in the next 12 months. Focus funding on where technology delivery impacts business capabilities the most. Allocate these investments to front-office capabilities that improve customer experience and employee productivity. Specifically, extend platform integrations, expand CRM capability, and further leverage business intelligence suites.
- IT operating model performance improvements. Planned changes to your business capabilities demand more of your IT operating model. According to Forrester’s 2022 data, 49% of respondents at future fit organizations see improving their IT operating model performance as a critical priority in the next 12 months. Set aside spending to rebalance the efficiency and effectiveness of your IT operating model with high scale and low reuse cost in mind. Process automation and operational redundancy to support critical business services are top priorities. Specifically, integrate RPA/ML/AI into high-throughput environments like transactions and analytics. Consolidate the database, middleware, and service layers of the tech stack to find further efficiencies and increase effectiveness of delivery.
Jettison Spending That Does Not Move Value Forward
With seemingly endless amounts of tradeoffs, tech funding can quickly become distracted and ineffective. And for those organizations hunkering down and fearing the worst from a recession, doing nothing may seem the best path forward. Instead, future fit technology executives are taking a cost-to-value approach to keep tech spending directly tied to the delivery of business objectives and customer value. According to Forrester’s Budget Pulse Survey, 2022, 80% of IT decision-makers ranked aligning IT performance and investment initiatives to strategic business objectives and outcomes as a high or critical priority. Adopt this approach to empower your organizations to navigate any crises most effectively. For most of you, this means you should pull back on:
- Projects that aren’t delivering customer or employee value. We all have them — projects that we are executing with no direct links to clear customer or employee outcomes. Use the current levels of looming uncertainty to cut projects that yield too little value. Ensure that your portfolio follows their lead by keeping it focused on improving customer and employee digital engagement. And, like Oshkosh Corporation, leverage a strategic portfolio management practice to build transparency that helps you evaluate the full set of tech-based initiatives and make the right decisions.
- Redundant, early cloud implementations. Where many thought the cloud would be the antidote to technical debt, the truth is that inadequate governance, misdirected investments, poor coordination, and failure to manage change continuously increase cloud redundancies and waste. This is an easy win for cost savings and efficiency gains. A leaner cloud portfolio will also allow you to consolidate vendors while improving monitoring and addressing vendor viability and poor ROI issues. An example of the wrong practice? One large Forrester client told us that they have only one resource to do vendor management across their SaaS and cloud investments, making it impossible to monitor and manage performance.
- Technical debt. The shadow of technical debt grows longer all the time. According to Forrester’s 2022 data, 55% of respondents at future fit organizations view upgrading, refreshing, or consolidating business apps, hardware, and software infrastructure as a critical priority. Entering 2023, minimize legacy investments as an intentional part of your planning. Keep mission-critical enhancements like regulatory responses but postpone less important spending like digitization of terminal emulation. And yes, maintain a laser focus on prioritizing technical debt reduction. For example, many clients are struggling with doing a point upgrade to an old, on-premises ERP as their plans for real modernization are further out. Most should live with their current version and save the money and effort for the inevitable — and higher payoff — modernization to the cloud looming.
- Bloated apps contracts and pricing. Uncertainty is destabilizing some software markets. Established software companies are struggling to deliver the returns required by their valuations, while emerging software companies are struggling to survive. For example, a large enterprise apps vendor has aggressive midterm targets to cut costs by moving its customers off legacy products. And in financial services, there has been a surge of startups willing to cut deals to maintain funding. Use this discord to your advantage by renegotiating prices where possible and pushing for subscription-based or even consumption-based pricing. Further, look for opportunities to reduce first-year charges, expand seats, optimize contract terms, and improve other contract dimensions that improve your business. In addition, look for ways to optimize your tech stack by rationalizing investments.
Experiment With Value As Your Compass
It is hard to swim against the tide, but it can be worth it. For 2023, take the time to place bets but focus them more on the pragmatic than the dynamic. We all want a moonshot, but it’s often pragmatic innovation that yields growth. Focus on proving out technologies, concepts, and capabilities that can directly impact the top or bottom line. Use experimentation as an opportunity to uncover where the IT organization becomes more valuable to the business. Focus experimentation on:
- Pragmatic innovation that drives the employee experience (EX). Make this the starting point to look for opportunities where you can tap into established technologies like machine learning, AR/VR, and automation to drive increased efficiency and effectiveness. For example, the CIO in a large US city has brought an EX-specialist onto the leadership team to improve self-service apps for the city’s employees, reducing demand on the tech organization. As this approach requires reassessment of current and near-term funding, consider a value-driven adaptive governance practice to speed the shift, making you more future fit.
- The right balance of co-innovation partnerships. For future fit organizations, the days of owning all the strategic assets, processes, and innovation thinking are ending. Build your future by trimming the non-strategic partnerships and creating a series of strategic co-innovation partnerships that help you identify opportunities, scale capabilities, and orchestrate better and faster results to the business. Consider building value-aligned term sheets, including metrics for agility, velocity, and skills transfer. Inventory your existing partners to find out which ones generate the most value — not just the ones you spend the most money with. For example, you might that find the best co-innovation from your modern application development partner rather than your lift-and-shift cloud migration partner. Sometimes they are one and the same. HCL, for example, worked with a telecom equipment customer to fund cloud migration in part with savings in operating costs, but also refactored applications to take advantage of modern applications for key platforms.
- Existing emerging tech use cases. Rather than shutting down more forward-thinking ideas, reassess the way you think about and deploy them. The financial industry is starting to realize practical use cases for distributed ledger technology (DLT), with payment processing, interbank transfers, anti-money laundering, and clearing and settlements delivering real value today. Furthermore, more than a hundred DLT use cases across all major industries have emerged in China, such as supply chain finance, asset attestation and protection, distributed identity, product provenance, digital asset management, and privacy-preserving computing. In China, CATL, COMAC, and State Grid are embracing metaverse precursor solutions to expand digital twins for virtual operations; meanwhile, Burberry, Coca-Cola, and Tesla are activating virtual marketing to attract novelty-seeking customers.