IDC’s Digital Leadership Community (DLC) July 2022 session was much more positive in outlook than I had expected. The 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 more difficult and is impacting salary expectations for new hires. One member spoke of their finance department telling them that when the recession comes, salaries will fall. But will that really happen? One CIO told us it has already happened in Israel, where a crash in the start-up market has eased the situation from just months ago when requests for salary increases were in the order of 30%–50%. This could be a sign that the overheating in the salary space will subside somewhat due to recessionary pressures.
Nevertheless it was acknowledged that IT skills are in high demand and will remain so. This is reinforced by IDC research that says the gap in available skills is still growing in all markets. The discrepancy in salary between new hires and existing employees is widening due to the need to pay new hires more due to inflation, which is a potential source of friction between employees. One company in a market with inflation running very high said it has resorted to salary reviews every six months to stem the tide and ease the suffering of its IT workforce. Proactively offering wage increases to retain IT talent was discussed.
There was a consensus that inflation is hitting opex contracts hardest, as might be expected, but there were also warnings from participants that negotiations across the board are becoming harder as suppliers brace for rising costs. Many supplier companies are trying to raise prices to adjust to higher costs (including energy costs). One CIO spoke of an SD-WAN contract negotiation where he saw clauses in the contract to ensure flexibility in prices between now and when the contract is actually signed. It was the first time he’d seen such a clause. The consensus was “be ready to walk away from key suppliers if they continue to hold a gun to your head.”
All participants agreed they are expecting more such difficult discussions with vendors until the end of the year. These discussions will have a big impact on IT budgeting in October. For some, who have had contracts in place for more than 10 years, vendors are now asking for additional clauses to provide flexibility for prices.
A positive note was raised by a CIO from Turkey, which is currently at 78% inflation. He said they are used to inflation. “It makes us flexible,” he said. They are focusing on fixed-fee agreements and projects to try to push inflationary risk on to suppliers. They are also migrating to cheaper or free products — they used MS SQL previously, for example, and are now moving to NoSQL and alternatives. He also said, “Big inflation rates make the business side dynamic.” His organisation is consolidating IT across the international group and is planning to have most IT handled from Turkey, as salaries are quite low there, and this reduces costs in opcos in other countries. Essentially, for that CIO, inflation is a challenge but also an opportunity.
One attendee — who had just finished budgeting — said their budget had been agreed with less discussion than ever because the finance department knows that inflation is raging. For now, the company can pass on prices to the market. As a distributor you can benefit from inflation. IT has even provided a special calculation tool to optimise pricing for the distribution business unit. It was noted by participants that price increases are even more drastic due to the dollar-euro exchange rate changes with the strengthening of the dollar.
Attendees also discussed how to decide which projects to postpone. A number of participants said they are looking for higher ROI than usual, in effect taking a harder look than usual, with IT deciding together with business which projects would pay back quickly. An attendee said his organisation is keeping IT “on prem” to delay the shift to opex. Others have moved to outsourcing to save money by avoiding upfront investment.
Will there be a big drop in IT budgets with the expected recession? No one on the call was expecting a big drop. The recommendation from attendees was to slow down strategic projects that have a longer payback period (three to five years) and most have already done that. I asked if anyone expects budgeting to become more dynamic/frequent. The answer from the group was, “No, not really.” One attendee did note that their cloud/FinOps team is looking to forecast cloud costs more frequently to avoid cost surprises and suggested looking for support from AWS and MS for that. Some suggested conducting this assessment on a monthly basis, and getting finance team support for the IT team to do that. The need to educate the executive board about the volatility of cloud costs was also noted.
Energy prices are a crucial factor for some participants. In certain industries the business is doing scenario-based planning based on different exchange rate outcomes and energy price thresholds.
The meeting ended with surprising positivity among the attendees. It was good to see that the Digital Leadership Community is pulling together to help each other in times of adversity. We look forward to you joining us in our next meeting. If you would like to access the DLC board for this quarter and add comments or read the IDC research, please do so here.
If you already receive invitations to our sessions, I hope to see you there. If you would like to join the community, please email Marc Dowd (mdowd@idc.com).
IDC Digital Leadership Community – Think Tank Topic August 2022
Brainstorming Out of the Box
Thursday, August 25, 2022, 17:00 CET
Sometimes doing something unexpected can really pay off. This is true of being a Digital Leader, just as it is for disruptive innovation.
In this light-hearted but also serious session we will look at the “hacks” and experiences that we can share. We will be dealing with subjects in all areas from leadership “masterstrokes we have witnessed” to unusual policies that work.
In the session you can expect:
- Amusing anecdotes with a deeper meaning
- Car crash policies and how to avoid them
- The heroes of digital leadership, and why we think they are great
We hope you will join us. Please feel free to suggest Digital Leaders who might benefit from these discussions.