Recession Advice: Go on the Offense With IT Investments

Investing in differentiating digital initiatives that drive business value

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Recession Playbook for IT Executives and Their Teams

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Make the right digital bets at the right cost

Whether the global economy technically slides into recession or not, organizations face unique economic headwinds that threaten their business resilience, growth and profits in 2023.

Deploying the right digital initiatives is critical to:
  • Permanently reduce the cost of doing business 
  • Improve customer and employee experience 
  • Exploit disruptive innovations 
  • Outperform competitors during a downturn 

Read on or tap the interactive infographic (left) to learn more about key elements of digital offense and how Gartner can help.

 

 

Leveraging digital to drive business resilience and growth

Organizations have a lot more digital tools and digital capabilities at their disposal today than they did during the financial crisis of 2008-2009, but shrewd digital investment means focusing on differentiators that will drive success over the long term. 

And if you don't invest effectively in digital in 2023, you'll increase your technical debt and let competitors out-innovate you on digital products and services and scoop up the talent you need.

Define digital strategy, ambitions and outcomes clearly

Highly effective digital leaders rigorously define and articulate the scope of digital ambitions, declaring how far their enterprise intends to leverage digital technologies and approaches to improve tangible business outcomes. 

Most fundamental: Distinguish in digital strategy between digital optimization and digital transformation.

Prepare to build your IT digital maturity

Whatever the strategic ambitions and associated strategic plans, make sure digital initiatives are selected carefully so the enterprise does not spread its focus and resources too thinly. To achieve enterprise ambitions, CIOs must invest in four core mutually reinforcing capabilities: strategy, governance, architecture and IT delivery (see more in FAQ).

Use diagnostic assessments to determine the maturity level of your IT function in all four capabilities, and align your target maturity level and transformation program based on the enterprise’s digital ambition.

Use Gartner insights, expert guidance and tools to help you build and execute your IT and digital strategy

Talk to us now to see how Gartner can help you develop and execute IT and digital strategy.

Identify and accelerate differentiating digital bets

Despite the pressure on funding from high interest rates, the appetite for digital investment remains strong, with 89% of boards agreeing that digital is an implicit part of growth strategy and 80% of CFOs planning to increase their technology spend by at least 3% — and 43% planning to increase that spend by 10% or more.

Prioritizing digital investments by business value

IT organizations need a formal process for evaluating, measuring and prioritizing IT spend, tying investment opportunities to the priorities the organization’s primary business objectives.

Gartner predicts that by 2027, 75% of all IT investments will fail to drive meaningful business value if CIOs do not establish a clear and actionable technology investment model.

Six common business objectives are:

  1. Revenue improvement

  2. Cost reduction

  3. Risk reduction

  4. Quality improvement

  5. Time to value

  6. Efficiency gains

Whatever are your objectives, it’s key to prioritize and weight each to validate your key business outcomes so you can produce a defensible yet actionable list of supporting IT investments.

Also make sure you foster a productive CFO-CIO partnership that focuses on enterprisewide outcomes when you try to seek and sustain funding for digital initiatives.

 

Use Gartner insights, expert guidance and tools to help you prioritize digital

Talk to us now to see how Gartner can help you prioritize your digital bets.

Rethink the employee value proposition in IT

While reports are growing of layoffs in the tech sector, digital talent remains both scarce and costly, especially for certain digital skill sets.

In the short term, there may be opportunities to snap up digital natives from companies that have retrenched. You won’t want to tell your board, "Other companies secured great digital talent at a discount, but we did not.”

But longer-term, what’s needed is a sustainable talent acquisition and development pipeline, set up to ensure the right talent is in the right place at the right time. And what has remained true since the pandemic forced an overnight change in work models is that the employee value proposition (EVP) must evolve to attract and retain digital talent. You’ll need to reframe EVP components by adopting the human deal — designing for people, based on life experiences and centered on feelings.

Gartner predicts that through 2024, 70% of companies that do not have a well-defined EVP will be unable to hire and retain sufficiently for their digital talent needs.

Aggressively diagnose and solve digital talent challenges

Long-term, you also need to diagnose your enterprise’s particular talent challenges to develop strategy and tactics tailored to address them. Use a construct like the Gartner Digital Talent Management Framework to take a structured, life cycle approach to digital talent management, from recruitment to renewal and retention through to talent release.

CIOs and IT leaders can use this approach to identify and prioritize digital skills and talent needs and devise appropriate strategies to evolve and develop the workforce in line with changing business priorities.

Avoid common cost management errors

Worldwide IT spending is still rising, and 80% of CFOs plan to increase their technology spend by at least 3%, despite ongoing recession concerns.

Economic headwinds inevitably force organizations to focus on cost reductions. The key is to avoid common cost management errors that limit the organization’s financial health and growth.

Avoid common cost reduction mistakes

Even when approaching costs strategically, CIOs will likely be asked to reduce costs in the short term. They will need to do that while inflicting the least damage on the mid- and long-term health of the business.

Three things your board won’t want to hear when looking back at today’s cost decisions:

  • “Our costs kept increasing with inflation and now our margins are uninvestable.”

  • “We cut costs too far and couldn't keep up with demand when it returned.”

  • “Higher product pricing led to permanently losing market share.”

Fund digital via strategic cost optimization

Done right, strategic cost optimization uses a programmatic, shared approach to evaluate spend and costs, enabling you to optimize current resources and shift savings to investments that deliver greater value to the business.

To ensure that digital doesn’t go underfunded due to cost pressures, make sure you aren’t forced to simply self-fund digital initiatives through cost savings from other budget areas. Realizing scale from digital efforts requires more substantial funding than that generated by IT budget savings, and digital is not a zero-sum game. 

Articulate both costs and benefits in terms of business value and foster a productive relationship with the CFO to secure access to digital-investment funding (see also “Prioritize digital bets”). 

Use Gartner insights, expert guidance and tools to help you find cost-efficiencies

Talk to us now to see how Gartner can help you find cost efficiencies.

Proactively manage vendors and future IT contracts

  • Gartner recommends negotiating future price increases below regional inflation rates.

  • Many vendors operate with margins of 50% or more; make sure to know the root cause of requested price increases.

  • Worldwide public cloud end-user spending is expected to reach nearly $600 billion in 2023.

Vendor negotiations are challenging even in the most favorable economic conditions, but inflation and economic uncertainty add new complexity. You need to be especially vigilant in managing IT vendors to decipher whether seemingly exorbitant price hikes and excessive renewal costs are fair and in line with economic indicators.

While managing IT costs is an ongoing imperative, certain technologies are especially integral to offensive digital strategy today. For example, public cloud is growing as the primary architecture for modern workloads, and public cloud end-user spending is surging. But cost mistakes often accompany cloud migration and ongoing cloud costs can spiral. Planning a cloud strategy must include decisions about services and providers from the outset.

Clients often tell Gartner they struggle with conflicting messages from vendors, which make it difficult to accurately predict tangible cost savings from the chosen strategy. For example, traditional cloud vendors may continue to push on-premises infrastructure — and have modernized their pricing to offer pay-per-use models — while cloud providers may make exaggerated cost savings claims about migration.

Analyze vendor proposals thoroughly

While the inflationary environment may make vendor negotiations thornier, technology proposals must always include enough detail to enable CIOs and their teams to unbundle terms and surface hidden and missing costs. Make sure to use tools and financial models to evaluate new and renewal acquisitions and negotiate complex deals effectively.

For example, Gartner recommends a four-step approach to analyze and negotiate multiyear software and SaaS deals. At a glance, those steps are:

  1. Engage stakeholders to forecast usage and implementation.

  2. Request vendor pay-as-you-go (PAYG) proposals to compare multiyear prepay options.

  3. Calculate the net present value (NPV) of PAYG payment streams to compare prepay options.

  4. Use NPV-to-prepay analysis models for leverage to negotiate better pricing and terms.

What is a technology roadmap? Do you need one?

A technology roadmap is a strategic blueprint that communicates how an enterprise’s IT plans will help the organization achieve its business objectives. It often contains visual graphics and supporting documentation that serve as helpful tools to show progression from a current state to a desired outcome.

The point of technology roadmapping is simple — to anticipate technology trends and needs and map your pathway to adoption — but the process can be arduous. It can be especially challenging when mapping emerging technologies, with which enterprise architecture (EA) leaders may lack experience.

Impactful roadmaps illustrate milestones and deliverables needed to translate strategy into execution over a specific period. It takes a structured and comprehensive approach to effectively describe and plan change.

Best practices in tech roadmapping

  • Create a structured practice for the development and evolution of roadmaps by identifying templates, taxonomies and tools that promote consistency, efficiency and clarity, both within and across them.
  • Provide stakeholders the right level of detail by tailoring roadmaps to a specific audience and create excitement around the direction.
  • Maintain traceability across roadmaps to expedite decision making by leveraging business outcome metrics.
  • Enable discovery and usage of roadmaps in order to improve utilization and adoption by publishing and actively promoting roadmaps to their intended audience.

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Frequently asked questions

“Digital” isn’t a monolithic strategy, and it’s critical to distinguish between objectives:

  • Digital business transformation means a change in three of the four components of a business model (customers, value propositions, capabilities and financial model), so it represents a radical shift in the way an organization delivers value to customers or the segments it serves. Wholesale enterprise business model change is rare; transformation typically happens only in one piece of the business at any given time.

  • Digital optimization improves existing operations and business models. The business model remains the same, but how the organization operates changes. For example, you digitalize key capabilities required to deliver on your business proposition or profit model. Near-term optimization can be a building block for transformation later.

There are four critical components to becoming a more digital enterprise (whether transforming or optimizing):

  1. Digital business strategy to set the direction of your initiatives. A list of unconnected digital initiatives is not a digital business strategy.
  2. I&T operating model to deliver technology initiatives with speed and agility, and effectively connect IT and the business. This model represents “how stuff gets done.”
  3. Organizational culture that is collaborative and customer-centric, and empowers employees to make more decisions by themselves.
  4. Technology foundations, from digital workplace systems to data and analytics.

Gartner argues that digital maturity in the IT organization is the sum of four core and mutually reinforcing capabilities: 

  • Strategy. Digital strategy calls for both digital transformation-and optimization-oriented outcomes, but the mix depends entirely on your objectives. (Transformative is more radical and more risky.)

  • Governance establishes decision making within the organization. In mature enterprises, better decision making aligns to value, risk and strategic impact. 

  • Enterprise architecture (EA) must translate business strategy into business outcomes and realizable action plans that inform, operationalize and drive business capabilities, value streams, business processes, I&T decisions and changes to the underpinning and supporting IT estate.

  • IT delivery ensures that the right internal IT services are offered at the expected price and quality levels to sustain IT-enabled business capabilities and assets over time. 

Communicating the business value of IT requires a focus on business outcomes delivered, not IT systems managed or work done.

Gartner urges CIOs to improve the clarity of business-value-of-IT (BVIT) communications by using language, metrics and reports that focus on IT’s impact — not the effort expended — on delivering technology-enabled business outcomes.

No single metric is “the” best at demonstrating BVIT. The most valuable metrics are those that can influence business decision making in your organization.

There is rarely a shortage of metrics so the CIO’s task is to elevate a select few operational KPIs to make them specific to the applications and infrastructure that support specific business outcomes and specific business metrics that are important to stakeholders.

CIOs and their teams require clear visibility into their IT spend to ensure efficiency and strategic alignment. Leading organizations regularly examine and benchmark spending across multiple cost views to facilitate smarter spending and better business outcomes. To do the same:

  • Establish a baseline of your total IT spend and staff levels.

  • Compare total IT spend to industry peers.

  • Identify areas for improvement.

  • Improve IT cost management with multiple views of IT spend.

  • Establish future budgeting or efficiency goals.

  • Shift IT spend to better align to business value.

  • Communicate performance to stakeholders in your organization.

  • Build a compelling story around how IT spend is strategically aligned to enable business objectives.

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