September 08
Since the spring of 2020, organizations have been struggling to manage one crisis after another. The COVID-19 pandemic forced many industries to completely rethink their approach to doing business, rapidly embracing remote and hybrid work arrangements while taking drastic steps to protect both employees and customers. After making those initial adjustments, new pressures in the form of severe supply chain disruption, changing consumer habits, and worker shortages put companies on their heels again, to say nothing of an evolving policy and regulatory environment that further contributed to uncertainty.
By the time 2022 arrived, however, previously modest concerns about inflation had evolved into outright alarm as the consumer price index continued to grow without signs of slowing. Although it remains to be seen whether the trend holds over the next year or more, there’s no reason for technology leaders to stand by passively hoping economic indicators improve. Instead, they can take proactive steps today to put their companies on better footing to succeed tomorrow.
Inflation Challenges Facing CTOs & CIOs
With inflation reaching the highest levels in 40 years, many CTOs and CIOs are facing a new array of challenges that haven’t been encountered in more than a generation. Rising interest rates have signaled an end to cheap sources of capital that have traditionally allowed organizations to ride out difficult times, while the sudden decline in consumer purchasing power is also reducing revenue across a wide range of industries.
These challenges are playing out in a few important ways for executives managing IT departments and technology strategies for their organizations.
Rising Labor Costs
The cost and availability of labor were already forcing companies to make tough decisions before the inflation crisis became front page news. According to Gartner research, a combination of sustained economic growth, a dwindling labor pool, and pandemic-induced shortages all contributed to significant increases in labor costs by mid-2021. Unfortunately for most industries, inflationary pressures have kept wages high, as skilled, in-demand workers look for positions that pay enough to keep pace with rising prices. This dilemma is especially acute in the technology sector, where workers are receiving 20% or more in compensation for positions in key areas like cloud computing and data science.
Hardware costs and shortages
Many organizations were willing to absorb the sizable capital costs of maintaining on-premises infrastructure when the price of hardware and components was low, but the combination of supply chain disruption, chip shortages, and inflation have caused many of them to reassess those decisions. Even common IT products are backordered for several months, and rising costs of components is pushing up the prices of a wide range of equipment. The average price of semiconductor chips increased by 15% or more in 2021, significantly increasing the cost of maintaining on-premises deployments.
Budget Shortfalls
With revenues falling sharply, many organizations are cutting back to remain profitable. The previously thriving tech sector has made headlines for layoffs throughout 2022, with even some of the largest companies reducing their workforces. Thus far, cuts have not had a significant impact on IT spending, but there is good reason to suspect that they could be a leading indicator of future budgetary pressures, especially if prices continue to rise for consumers. Reductions in technology spending or simply passing costs along to consumers could have significant long-term impacts on business growth, forcing companies to reassess their infrastructure and capacity planning.
5 Technology Strategies For Minimizing the Impact of Inflation
Despite these growing challenges, organizations that have made investments in digital transformation initiatives are better suited to navigating inflation than those that have clung doggedly to their aging legacy tech stacks. That’s because digital technology has shown itself to have a deflationary impact on companies due to its ability to reduce the cost of doing business.
Fortunately, it’s not too late for CTOs and CIOs to make the most of these benefits by focusing on a few key technology strategies:
Automate Wherever Possible
Even before inflation became a major source of concern for businesses, there was a strong push to automate a wide range of organizational processes. That’s because automation helps to reduce labor costs and improve efficiencies pretty much everywhere it’s implemented. Whether it’s robotic process automation that eliminates toil-intensive and error prone tasks or automation tools that accelerate software development, investing in automation can deliver substantial productivity boosts by freeing up workers to focus on higher-value tasks.
Leverage Data
Increasingly, the ability to derive actionable insights from unstructured data sets has become a key market differentiator for organizations. Companies with access to good data and powerful analytics software that gives them transparency into operations, supply chains, network infrastructure, and customer relations have the ability to make targeted, informed decisions that will actually have an impact on their business. That’s largely why research firms like McKinsey expect smart organizations to bolster their data analytics capabilities in order to adapt to an inflationary economy.
Reassess Existing Platforms
While digital transformation strategies have helped companies reshape their IT capabilities, many of these efforts have also resulted in substantial enterprise sprawl. Some departments are using between 40 to 60 applications, pushing the average number of applications being used companywide to over 200, many of which are not controlled or governed by IT departments. While this is usually regarded as a major challenge, it also presents an interesting opportunity for IT leaders willing to take the time to assess the platforms at their disposal. It’s entirely possible that the organization is already paying for tools that could help improve operations or provide new insights, but are not being leveraged currently. By the same token, applications that are still incurring ongoing expenses without contributing anything of value or creating a redundancy with other platforms can be discarded to trim budgets without having to give up any meaningful capabilities.
Minimize Capital Expenses
With supply chain disruptions and inflationary prices raising the capital costs of maintaining on-premises infrastructure, many organizations will no longer be able to put off migrating their applications into a more favorable environment. Whether that means abandoning inefficient and expensive private data solutions to move into a colocation data center or transitioning entirely into the cloud, shifting the bulk of spending on an organization’s tech stack from CapEx to OpEx offers a number of benefits. Colocation and the cloud make it easier to scale capacity, which is especially valuable in times of economic uncertainty. Outsourcing infrastructure costs also allows companies to invest more of their resources in innovation and creating an outstanding customer experience, both of which have a greater potential to drive future revenue than investing in the day-to-day management of legacy servers and other equipment.
Invest in Flexibility
In addition to very real financial pressures, inflation also casts a massive shroud of uncertainty over every decision an organization makes. This not only makes it difficult for technology leaders to make long-term decisions about IT investments and software development, but also impacts short-term decisions about where to place application workloads. By investing in a flexible hybrid architecture that makes it easy to shift workloads and data between public and private cloud platforms, colocation environments, and on-prem infrastructure, organizations can improve efficiency and take advantage of opportunities when they present themselves.
How Evoque Helps Companies Navigate Inflation
With multiple carrier-neutral colocation facilities and extensive cloud engineering experience, Evoque Data Center Solutions is an ideal partner for CTOs and CIOs looking to protect their companies from the challenges posed by inflation. Evoque’s innovative Multi-Generational Infrastructure allows customers to free themselves from dependency on a single technology strategy, giving them the freedom to shift workloads and assets without restructuring their contracts. With fully-redundant data centers backed by robust SLAs and more than a decade of cloud consulting experience involving mission critical deployments, Evoque can provide a safe haven against the dangers of inflation.
To learn more about how Evoque Data Center Solutions helps organizations embrace digital transformation, talk to one of our solutions experts today.
