Beware! Inflation is Coming, and It’s Not Playing Nice
Inflation is everywhere – literally. Not only are all the media outlets plastering it on their front pages, every country in the world is experiencing rising costs. Essentials of all variety are more expensive and our money doesn’t go as far when purchasing goods and services.
While everyone is feeling the squeeze, one industry in particular has already elected to take decisive action.
“Barely into the year, more than 94,000 tech jobs have already been eliminated,” says Forbes. “No corner of the industry appears to be untouched, as big players like Microsoft (down 10,000 jobs), Alphabet (12,000 jobs) and Amazon (18,000 jobs) scale back in dramatic fashion.”
Some of these layoffs have been couched as a natural and necessary correction to tech’s hiring frenzy at the height of COVID-19. However, others believe these organizations are simply fearful of inflation projections.
Based on the industry-specific costs ahead, they may be right to be worried. But there are still tactics IT teams can take if they want to be strategic in planning their future spending.
Inflation’s Impact on the IT Industry
CIOs have seen the fallout from inflation firsthand. Supply chain issues are driving up prices and making some hardware more scarce. Everything from individual laptops to entire servers have already been impacted, resulting in a cascade effect that influences more than just the price of materials.
As Avery Dennison CIO Nicholas Colisto, tells CIO Magazine, “rising consumer prices and their impact on wage inflation are [also] making talent acquisition and retention more competitive.”
In terms of budget items, experts are watching these and other areas as places to plan around:
- Rising contracts and staffing costs. Recruiting talent is getting more expensive – and so is retaining them. Salaries are also on the rise as the cost of living increases. Even contracted positions, like the kind offered by Managed Service Providers, have risen 25% in some cases.
- Increasing technology and infrastructure prices. Servers and storage costs are also growing thanks to increased demand for cloud services, which is predicted to rise more than 20%. Other challenges include budgeting for, “infrastructure changes needed to accommodate employees returning to work,” according to TechTarget.
- Higher bills. Many IT leaders are tracking how inflation is slated to increase IT basics like workstations and other products. Specifically, they anticipate supply chain backlogs will continue driving up prices while slowing delivery times.
- Premiums for rushed equipment purchases. Speaking of longer delivery windows, John-David Lovelock, research vice president and distinguished analyst for the General Managers team at Gartner, expects hybrid work trends to drive demand for expedited equipment. He says CIOs, “can expect to pay premiums, though, if they want to get those items sooner rather than later…inflation isn’t the sole culprit driving such surcharges; rather, it’s a mix of factors at play — COVID-related shutdowns that impact manufacturing plants in Asia, supply chain issues and demand that exceeds supply as well as inflation.”
Aligning IT Spending with Business Conditions in an Inflationary Environment
Even if all this sounds scary, industry leaders like IDC still encourage companies to strategically plan for technology investments.
To avoid project derailment and insulate against productivity declines, try looking for ways to potentially use this uncertain economy to your advantage.
Specifically, “Adopt cloud optimization (FinOps) practices and processes that eliminate waste in current cloud investments while also resetting long term cloud cost metrics (Cloud Economics)…it’s also important to adopt a phased approach that delivers short term savings, mid-term gains that protect the business if conditions worsen more than expected, and long-term architectural choices that ensure sustainably lower operating costs as business conditions improve.”
By avoiding the temptation to be reactionary, your organization can make smarter, more far-sighted moves that work with, not against, the inevitabilities of inflation.
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