CFOs Must Face Tech Stack Inflation by Balancing Priorities

It’s been a good run. Business consumers of software have enjoyed stable or even falling prices amid an explosion in productivity and choice. Plentiful capital, intense competition, and a strong pace of innovation over two decades deterred tech providers from raising their prices as they focused on the holy grail of market share.

Microsoft, for example, added hundreds of enhancements to Office 365 over the past decade and only raised prices this March.

Sean McBride

But as the price of everything from gas to food staples to furniture gallops ahead at its fastest pace in more than 40 years, businesses need to prepare for an unfamiliar era of tech inflation. Higher interest rates will likely pull capital away from buzzy tech startups and toward bonds and other safer assets, resulting in less competition among existing players. That, combined with red-hot wage pressure in the sector and higher business expenses, means it’s only a matter of time before technology product companies start to jack up their prices.

How CFOs and chief information officers (CIOs) respond will be crucial for determining their companies’ success in the coming years. Scaling back on all digital initiatives in the face of inflation would be a misguided approach. But doing nothing as prices march higher is also a bad idea. The answer is to find a balance between these extremes.

The Balancing Act

Reducing costs is a powerful antidote to inflation. That’s why it will make sense for companies to first prioritize digital investments that directly streamline processes or reduce costs. A prime example of this is robotic process automation (RPA), which can automate certain customer service or accounts payable functions.

Finance teams often spend hundreds of hours producing monthly reporting packages, variance analyses, and forecasting. The emphasis on deep-dive cost reviews will only increase in an inflationary environment, and yet most entrenched in these efforts will overlook the inefficiency and waste of their own process.

In our experience, business analysts still spend at least half of their time gathering and manipulating data. Modern business intelligence tools can automate and streamline data collection, preparation, governance, and validation processes, freeing up employees to focus on the higher-value tasks of data discovery, trend analysis, and what-if scenario modeling. This will enable the kind of rapid, insightful decision-making that characterizes companies that thrive in times of significant change.

Don’t Be Short-Sighted

Companies often already own licenses to at least some analytics tools, but lack the clear business-IT alignment and programmatic commitment to the analytics necessary to capture ROI. A short-sighted CFO might even make the mistake of putting these subscriptions on the chopping block when the next round of price increases comes around. But, with rising focus on upskilling and reskilling the labor force, increasing expectations of quickly changing and uncertain consumer behaviors, and analytics product vendors focusing on better meeting the user where they are, prioritizing investments in analytics makes a lot of business sense right now.

Given the inflationary economy, for each new IT initiative, there will likely need to be two to three more that must be reduced or halted altogether.

Given the inflationary economy, for each new IT initiative, there will likely need to be two to three more that must be reduced or halted altogether.

Companies should also explore outsourcing. Large-scale, repeatable business processes and even proprietary tech development may be great candidates for offshoring. It’s an opportunity to reduce cost, reallocate resources to core competencies, and possibly even reduce some of the localized impacts of inflation by globalizing operations.

Best Practices for Outsourcing

But outsourcing isn’t something that can be rushed. It requires careful decision-making around which processes to farm out and a thorough vetting of potential partners. Some suitable candidates for outsourcing are tech development tasks that lie outside the core of a business. An example would be a manufacturing company that needs to develop a customer sales portal or a pricing catalog — something that could be better developed by a vendor with deep expertise in that area.

When it comes to cutting spending on tech solutions, CIOs have several options. One is to hold off on large new purchases where possible and focus on optimizing the use of existing tech. Another is to consider downscaling from a high-end solution to a second-tier option based on the value you get from it. In either case, be disciplined about confirming the gap that needs to be solved is a technology change and ensure that your people are enabled to successfully adopt the change. There’s little point in having a Ferrari if all you really need is a Toyota, and neither is worth what you paid for it if your people don’t know how to drive it.

By being proactive and leaning into the change ahead, you can have some control over where and when you cut as well as embrace future tightening of IT budgeting cycles as an opportunity to improve efficiency and effectiveness.

The reality is, you won’t be able to manage down every tech cost as inflation takes hold in the sector, and any market change comes with an element of holding on and riding the waves. But by being proactive and leaning into the change ahead, you can have some control over where and when you cut as well as embrace future tightening of IT budgeting cycles as an opportunity to improve efficiency and effectiveness.

Economic downturns often result in positive outcomes of a leaner tech stack, more effective technology investment decisions, greater business process automation, and more engaged business users once we are on the other side. The question is, will you be leading your organization to the other side, or will third-party vendors or your competitors be dragging you?

Sean McBride is a partner and head of the business analytics practice at Plante Moran.