CIOs prep for the coming IT recession

Over the last few weeks, I have hesitated to consider the R word. After all, the economists predicted a quick V-based contraction followed by a return to normal. But it has become clear that there will be phases to coming back to what will be a new normal; and as this will take place over a longer period of time, it has become clear that a recession is coming for IT spending.

Analyst firms have started estimating differing impacts from the COVID-19 crisis. I have personally seen zero growth to investment declines. Given this, it was time to take the CIOs temperature. And to see, in particular, if there are any silver linings.

How ugly is it going to get?

While CIOs believe that the crisis has proven the value of IT especially for organizations that were ready with mobile approaches and where the CIOs were tightly connected to other business counterparts, everyone is clear that an IT recession is coming. Stephen Landry, CIO of Seton Hall, believes, “the country's response to coronavirus has highlighted the value of our investments in IT capabilities.”

Former higher education CIO, Theresa Rowe, however, asserted that “higher education likely has a rough road ahead. What does budget retrenchment look like? Who are essential personnel in a minimal campus presence, or an all online learning environment? How fast is leadership responding with an updated strategy? Or does it become slash and scatter.” Landry isn’t quite so negative but said, “unfortunately, my guess is that, in the short term, reductions in revenue will likely result in reductions to IT spending for many CIOs.”

City CIO Jonathan Feldman agreed with Landry and said, “tech spending is definitely going down. But it’ll go down through the collaboration with business leaders. And as we come through COVID-19, tech spending could be scrutinized more than ever. All spending will go down.” Author and former Business Week CIO, Isaac Sacolick, claimed that “most CIOs should expect cost-cutting because most businesses will face financial impacts from the crisis.”

When asked about the people side of the equation, former CIO and CIO consultant, Wayne Sadin said, “my CIO fun isn't driven by budget increases. If IT becomes a better business partner by helping preserve, then grow, the enterprise, it becomes more relevant. This is fun! Nobody likes laying people off. Firms I talk to are so far treating that as a last resort. It's a preserve and hopefully a positioning moment. Creating better IT agility helps a firm accelerate faster when growth picks up and makes for smoother M&A when opportunities present themselves.”

What are there any silver linings?

In a recent CIO magazine piece, Amity Millhiser, PWC’s chief client officer, suggested spending on digital transformation will remain largely intact. He said, “CFOs in our survey ranked digital transformation and customer experience investments much lower on the list of potential cuts than IT, general CapEx, and even workforce. They realize the importance of such investments to future competitiveness.”

While CIOs did not completely disagree with Amity, Feldman started by saying, “the CIO who previously built credibility with the CXO team will fare much better and do much better for the organization, both now and in the post-COVID-19 world.” He went on to say that “some spending will go up, especially anything that we can do to support remote workers; but net spending will go down, including hiring freezes and reduced new proactive projects.” In this process Sadin said, “CIOs should do what they always do. They should partner with the CEO and their C-Suite peers to devise coordinated plans that balance short-term tactics with long-term business strategy. It is dumb to make IT plans in a vacuum. It is, also, dumb -- although not uncommon -- to make business plans without the CIO.”

For many CIOs, this is a time to put on their strategic thinking cap. CIO Paige Francis believes that “CIOs should be rethinking planning before putting dollars to anything. What scenarios are we planning for and what can we do now to lay the groundwork for an equitable experience across all scenarios.” Sacolick agrees completely and said that “after the crisis, there should be rapid listening to market/customer needs and supplier risks. Pivot transformation programs to add, subtract, or modify based on what you hear.” This is very similar to Amy Webb at New York University’s Stern School who said, "leaders need to lean into the pandemic and make adjustments along the way. And by doing this, things will be okay. And together, we can build a better world on the other side."

Clearly, “at the end of the day this will only be about executive leadership. If the CIO is in that inner circle, then they can cast their path. If not, they will be at the mercy of those forging the path,” said higher education CIO Stephen diFilipo. Sadin agreed and suggested that “the crisis will create culture change, from top to bottom. In this process, it is important that CIOs think hard about the CIO's mission, place and evolution.”

In terms of silver linings, healthcare CIO Michael Archuleta, said that “out of every crisis a new opportunity arises. We are intensifying our focus on strategic planning for a digital future and are preparing ourselves to be ready to launch new initiatives when the crisis passes. In the short term we will see cuts, but also a re-focusing on IT strategies.” Food manufacturer CIO Aldo Ceccarelli doesn’t disagree and suggested that for him “there will be selective spending increases in things like cyber resilience and compliance first. And with this, there will be investment in artificial intelligence (AI), machine learning, and blockchain to follow.”

Parting thoughts

Unusually, there was a universal belief that we are going into an IT recession. In this environment, things that can drive cost and labor reduction and enable digital transformation will be winners. Everything else will be questioned today and in the future. This is a time for CIOs to stand, deliver and lead. Their companies are counting on them.