CFOs must balance their priorities and face the inflation of the technology stack

It was a good run. Amidst the boom in productivity and choice, business users of the software have experienced stable or falling prices. Abundant capital, high competition and a strong pace of innovation have prevented technology vendors from raising their prices for two decades as they focus on sacred market share.

Microsoft, for example, has added hundreds of improvements to Office 365 over the past decade, and it paid off this March.

Sean McBride

But as the price of everything from gas to groceries to home appliances continues to advance at the fastest pace in more than 40 years, businesses must prepare for unprecedented technological inflation. Higher interest rates pull capital away from struggling tech startups and into bonds and other safe-haven assets, leading to less competition among existing players. This means, coupled with the sector’s red-hot wage pressures and high business costs, it’s only a matter of time before tech manufacturing companies start raising their prices.

How CFOs and Chief Information Officers (CIOs) respond will be critical to determining their company’s success in the coming years. Backing off all digital initiatives in the face of inflation is the wrong approach. But doing nothing when prices are going up is a bad idea. The answer is to find a balance between these extremes.

Law of equilibrium

Cost cutting is a powerful antidote to inflation. That’s why it makes sense for companies to prioritize digital investments that directly streamline processes or reduce costs. A prime example of this is robotic process automation (RPA), which can automate certain customer service or account payment functions.

Finance teams often spend hundreds of hours producing monthly reporting packages, variance analyses, and forecasts. The emphasis on deep-dive cost reviews only adds to the inflationary environment, but deeply entrenched in these efforts are the inefficiencies and wastefulness of their own processes.

In our experience, business analysts still spend at least half their time collecting and manipulating data. Modern business intelligence tools automate and streamline data collection, preparation, management, and validation processes, freeing employees to focus on high-value tasks like data discovery, trend analysis, and scenario modeling. This enables quick, intelligent decision-making that identifies companies that thrive when significant change occurs.

Don’t be short sighted

Companies often have licenses for at least some analytics tools, but lack clear business-IT alignment and programmatic commitment to the analytics necessary to capture ROI. A short-sighted CFO may make the mistake of cutting these subscriptions when the next price hike comes around. However, with a focus on upskilling and upskilling workforces, rapidly changing and uncertain consumer behaviors, and analytics product providers focusing on better meeting the user where they are, prioritizing investments in analytics makes great business sense today.

Given the inflationary economy, for every new IT initiative, there are likely two to three additions that need to be scaled back or stopped altogether.

Given the inflationary economy, for every new IT initiative, there are likely two to three additions that need to be scaled back or stopped altogether.

Companies should explore outsourcing. Large-scale, repeatable business processes and even proprietary technology development can be great candidates for offshoring. It is an opportunity to reduce costs, redirect resources to core competencies, and perhaps use globalized operations to mitigate some of the local effects of inflation.

Best practices for outsourcing

But exporting is not something that can be rushed. It requires careful decision-making about which processes are available on-farm and thorough vetting of potential partners. Some suitable candidates are non-commercial technology development jobs. An example might be a manufacturing company that needs to develop a customer sales portal or pricing catalog – something that can be best developed by a salesperson with deep expertise in that area.

When it comes to cutting costs on technology solutions, CIOs have many options. One is to stop making large new purchases whenever possible and focus on optimizing the use of existing technology. Another is to consider moving from a top-tier solution to a secondary option based on the value you get from it. In both cases, be disciplined in making sure that it is the technology change that needs to be addressed and the gap that needs to be made for your people to successfully embrace the change. There’s little point in having a Ferrari if all you need is a Toyota, and if your people don’t know how to drive, it’s not worth the price.

By being proactive and supportive of future change, you can have some control over where and when to cut and tighten future IT budget cycles to improve efficiency and effectiveness.

But the reality is that you can’t manage every technology expense as the sector continues to fluctuate, and any market change comes with catching and riding the wave. But by being proactive and supporting future change, you can gain some control over where and when to cut and tighten future IT budget cycles to improve efficiency and effectiveness.

Economic downturns often result in positive outcomes from a weaker technology stack, including more effective technology investment decisions, greater business process automation, and more engaged business users once we’re on the other side. The question is, will you lead your organization to the other side, or will your third-party vendors or competitors drag you down?

Sean McBride is a partner and head of the business analytics practice at Plante Moran.