The July 2022 session of IDC’s Digital Leadership Community (DLC) had a much more positive outlook than I expected. Participants shared their experiences and plans openly and it was quite remarkable to be part of a discussion that really focused on “war stories” from the field and great suggestions for action plans.
Inflation is making the war for talent harder and affecting salary expectations for new hires. One member talked about their finance department telling them that when the recession comes, wages will go down. But will this really happen? One CIO told us it’s already happened in Israel, where a crash in the start-up market eased the situation just a few months ago, when requests for salary increases were on the order of 30%-50%. This could be a sign that the overheating in the salary space will ease somewhat due to recessionary pressures.
However, it was recognized that IT skills are in high demand and will remain so. This is reinforced by IDC research showing that the gap in available skills is still widening across all markets. The wage gap between new hires and existing employees widens due to the need to pay new hires more due to inflation, which is a potential source of friction between employees. A company in a market with high inflation said it resorted to salary reviews every six months to stem the tide and ease the suffering of its IT workforce. Proactively offering salary increases to retain IT talent was discussed.
There was a consensus that inflation is affecting operational contracts most strongly, as expected, but there were also warnings from participants that negotiations across the board are becoming more difficult as suppliers brace for rising costs. Many supply companies are trying to raise prices to accommodate higher costs (including energy costs). One CIO talked about an SD-WAN contract negotiation where he saw clauses in the contract to ensure pricing flexibility between now and when the contract is actually signed. It was the first time he had seen such a clause. The consensus was “be ready to walk away from key suppliers if they continue to hold the gun to their heads”.
All participants agreed that they expect more such difficult discussions with suppliers before the end of the year. These discussions will have a big impact on the IT budget in October. For some, who have contracts of more than 10 years, sellers are now asking for additional clauses to provide pricing flexibility.
A positive note was raised by a CIO in Turkey, which is currently at 78% inflation. He said they are used to inflation. “It makes us flexible,” he said. They focus on fixed-fee deals and projects to try to push inflationary risk onto suppliers. They are also migrating to cheaper or free products – they used to use MS SQL, for example, and are now moving to NoSQL and alternatives. He also said, “High inflation rates make the business side dynamic.” His organization is consolidating IT in the international group and plans to have most of its IT managed from Turkey, as salaries are quite low there and this reduces opcos costs in other countries. In essence, for that CIO, inflation is a challenge but also an opportunity.
One participant – who had just finished the budget – said their budget was agreed with less discussion than ever because the finance department knows inflation is running high. For now, the company can pass the prices on to the market. As a distributor you can benefit from inflation. IT even provided a special calculation tool to optimize pricing for the distribution business unit. It was noted by participants that price increases are even more drastic due to changes in the dollar-euro exchange rate as the dollar strengthens.
Participants also discussed how to decide which projects to postpone. A number of attendees said they are looking for a higher ROI than usual, in effect taking a harder look than usual, with IT deciding together with the business which projects will be quickly returned. One participant said his organization was keeping IT “in place” to delay the shift to opex. Others have turned to outsourcing to save money by avoiding upfront investments.
Will there be a big drop in IT budgets with the expected recession? No one on the call expected a big drop. The recommendation of the participants was to slow down strategic projects that have a longer payback period (three to five years) and most have already done so. I asked if anyone expects budgeting to become more dynamic/frequent. The response from the group was, “No, not really.” One attendee noted that his cloud/FinOps team is looking to forecast cloud costs more often to avoid cost surprises and suggested looking for support from AWS and MS for this. Some suggested doing this assessment monthly and getting support from the IT team to do it. Also noted was the need to educate the executive board about the volatility of cloud costs.
Energy prices are a crucial factor for some participants. In certain industries, the business does scenario-based planning based on different exchange rate outcomes and energy price thresholds.
The meeting ended with surprising positivity among the participants. It was good to see the Digital Leadership Community come together to help each other in times of adversity. We look forward to having you join us at our next meeting. If you would like to access the DLC panel for this quarter and add comments or read the IDC research, please do so Here.
If you are already getting invites to our sessions, I hope to see you there. If you would like to join the community, please email Marc Dowd ([email protected]).
IDC Digital Leadership Community – August 2022 Think Tank topic
Brainstorming Out of the Box
Thursday, 25 August 2022, 17:00 CET
Sometimes doing the unexpected can really pay off. This is as true for being a digital leader as it is for disruptive innovation.
In this lighthearted yet serious session, we’ll look at the “hacks” and experiences we can share. We’ll be dealing with topics in everything from “driving places we’ve witnessed” to unusual politics that work.
In the session you can expect:
- Funny anecdotes with a deeper meaning
- Car accident policies and how to avoid them
- The heroes of digital leadership and why we think they’re great
We hope they will join us. Please feel free to suggest digital leaders who could benefit from these discussions.