Many of the indications of an economic downturn are in front of us. Rising interest rates, drops in consumer spending, and fears of a recession are driving organizations to take a hard mid-year look at their budgets and their plans for the future.
In previous downturns, tech investment has traditionally taken a hit. However, that trend reversed during the Great Recession in 2008-2009. Following the financial and operational challenges of the pandemic this year, many companies have realized that tech isn’t the ideal place to look for substantial budgetary relief.
That doesn’t mean that technology investments should go unchecked. There are particular areas that retailers can delay until the storm has passed. But smaller-scale, strategic investments in areas like cybersecurity, outsourcing services, platform optimizations, and mission-focused digital transformation projects can be crucial to a company’s survival and even put you in a better position during the inevitable growth period that follows a downturn.
Even with limited budgets, retailers can still benefit from well-planned and strategic technology spending.
Signs Point to Continued Tech Investment
Continuing to invest in tech isn’t an unfounded concept. It’s a strategy that many of the country’s top businesses are already committed to.
In a recent CNBC CFO Council survey, twice as many respondents indicated that they would increase their IT spending over the next year as those who expected to decrease technology spend. That is due, at least in part, to tech’s value being proven as a business driver over the last two years.
In reality, IT budgets appear to be growing despite economic warning signs, albeit more slowly than the inflation rate. CIOs are reporting IT budget growth of 5.3% in 2022 and predicting further growth in 2023 of 5.7%. Discretionary technology spending is sacrificed for highly strategic and impactful initiatives, such as cybersecurity, cloud computing, AI/ML, data warehousing/BI, and digital transformation.
In a recent Harvard Business Review article, Dartmouth’s Coxe Distinguished Professor, Vijay Govindarajan, urged companies to continue digital transformation projects and accelerate them. He states, “The volatile environment is throwing up more challenges that can best be addressed by digital transformation, as well as opportunities that facilitate digital transformation.” Notably, his examples of complex supply chain issues and the ability to recognize shopping patterns and buyer behaviors show how digital transformation is a business enabler that positions retailers for responsiveness, agility, and growth.
Think Strategically About Tech During an Economic Downturn
The key to ensuring that you’re getting the value out of your IT spend is to think strategically about your technology investments and what they will do for your business. While traditionally seen as a cost center, tech is now viewed as a business driver and should be considered in that context.
Focus investments on quality improvements and optimizations: Organizations that came out of previous economic downturns at the head of the pack, like Samsung, defined their goals and considered technology spend based on supporting those goals. As Govindarajan notes, during the 2008 recessions, Samsung not only reorganized to focus on efficiency and profitability but concentrated on improving the quality of a few strategic products. These changes led to better positioning in the market during the recession and on into the post-recession growth period.
Reallocate funds from tech investments that are not mission-critical: For firms that are cash flow positive, this is a period to commit to those technologies that will set them apart from the competition. Pulling back in some areas will allow you to put more assets behind digital transformation initiatives that improve the customer experience, increase sales, and save on costs with predictive analytics and more efficient systems.
Be content with smaller, iterative tech investments: There is still good news for smaller businesses or those that can’t afford to invest heavily in modernization, AI, and digital transformation. Modern methodologies and even the structure of digital transformation initiatives can lend themselves to iterative improvements. This starts with first understanding which projects will give you the biggest bang for your buck from a goals perspective.
That might mean taking on the initiative that supports a better understanding of buyer habits or the ones that help cover the gap in resourcing. It could mean starting with projects that build the foundation for future work and creating the right reusable assets while funding future work with the savings from a modernization project. This must be defined based on your current technology stack and capabilities and aligned with the business’s strategic goals so that a measured, reasonable roadmap can be developed that moves you forward while staying within budget. Planning is the crucial first step.
Lean Into Tech to Land a Better Outlook
Let’s be clear: An economic downturn isn’t the time to cannibalize your most important initiatives. Technology has moved beyond the realm of operations and into being a driver of differentiation, innovation, and profitability.
For retailers looking to navigate these uncertain economic times, there is no step more important than evaluating and understanding your current position and drawing up a roadmap to where you want to be when the economy recovers. DMI offers a free digital transformation workshop to help you know what’s possible – meeting you where you are today and working with you to design and build solutions that will accelerate your company into tomorrow. Contact us to learn more about these workshops.
