It’s the New Fiscal Year…Yay? For many people, this time of year doesn’t exactly inspire popping champagne bottles and dropping confetti.
Planning your budget is difficult in normal times — but during a pandemic? It’s a whole different ball game. The uncertainty of today’s world presents an unprecedented challenge for companies preparing budgets for 2021. While the tendency is to hunker down and cut spending across the board, there’s a better approach to planning for your financial future amidst an economic crisis. Investing in technology now can put your company in the best position to survive—and thrive—post-pandemic.
Factoring remote work into technology investments
Designing a plan for remote work at warp speed has been one of the biggest obstacles of 2020 for many companies. According to a report from McKinsey and Company, “Fifty-five percent of leaders anticipate that at least half of their organization’s workforce will be fully or partially remote post-crisis.” Companies are paying closer attention to all the aspects of what it means to work remotely, from workflow to software to communications platforms. Technology spending has seen major growth in recent years as organizations look to align investments with corporate strategy. According to Deloitte, “As CIOs’ mandates change from value preservation to value creation, optimizing IT investments has become a top priority for them—and their stakeholders.” Investment in information technology systems and infrastructure will be crucial to keep business operations moving forward.
What does “optimizing” tech budgets look like?
As companies look to slim their budgets to preserve revenue and weather COVID-19’s hits to the bottom line, IT spending may be on the chopping block. One reason? Getting all stakeholders on the same page about IT strategy can be tough.
“Do you have buy-in from all the appropriate stakeholders? Are priorities aligned? If the answer is no, pushing IT through can be a long and painful process,” says Alison Dean, VP of Operations at Theorem.
We’re seeing a rapid turn towards digital transformation. As remote work and the use of digital products continues to rise, companies that focus on adaptation and growth will come out ahead. Leaders who see the bigger picture when it comes to prioritizing IT have led their companies to success through past recessions. For example, as noted in Fast Company, during the financial crisis of 2007-2008, Intel’s then-CEO Paul Otellini pushed to invest more in research and development, knowing that new and innovative technologies would drive future demand when the market rebounded.
“Schedule meetings with the various decision makers to present your rationale for why the spend is necessary, oftentimes, if one opts-in, more will follow,” says Dean.
Applying Lean Principles to budget planning
Even with uncertainty clouding the year ahead, don’t miss the opportunity to be strategic about your investments. In speaking to business and technology leaders about the pandemic, we heard several trends of successful adaptation in the face of crisis. Companies that prioritized funding the same way you prioritize projects for a sprint — by shifting budgets whenever it makes sense — were able to make smart investment decisions when it counted the most. Shifting investment strategies is a powerful tool in helping companies endure financial crises. A 2010 study of business recession strategies from Harvard Business School found that post-recession, the most successful companies focused on operational efficiency while also investing in marketing, R&D, and new assets. Take Caterpillar, for instance. After misjudging a U.S. economic recession, the world’s largest construction machinery manufacturer had dug itself a deep hole. As Reuters reported, Caterpillar “reduced its workforce by 33,000 people worldwide in 2009, closed plants and posted lower profits.”
But just two years later, Caterpillar was able to make a swift recovery thanks to some key investments that enabled the company to ramp up production and meet a flood of consumer demand. Following that recession, Caterpillar built and updated 15 facilities in the U.S., hired tens of thousands of workers, and $2 billion was committed for capital investments on its home soil. To stay above ground, Caterpillar continues to innovate and invest in new solutions when times get tough. When the company was dealing with over $2 billion in long-term inventory carrying costs due to inefficient outbound supply chain visibility, they brought us in as a strategic partner to find a solution. Our Theorem experts worked with Caterpillar to build an asset-tracking platform that provided real-time status and visibility across its global supply chain. The result: $1 billion in slack removed from the outbound supply chain in the first year, a 68% improvement in delivery times from manufacturing plant to dealer, and a 22+ point improvement in customer Net Promoter Score in under six months.
“Because of everything that’s transpired with COVID, more decision-makers are understanding the value of IT to help bolster their businesses for long-term success.”
Change by necessity
A recent Spiceworks Ziff Davis report, which surveyed more than 1,000 technology buyers in companies across North America and Europe, found that COVID-19 has been a catalyst for many businesses to make IT changes: “In the near future, the usual purchase drivers including the need to update outdated infrastructure, increased priority on IT projects, and escalating security concerns will continue to fuel spending. However, with more than half of companies planning to adopt flexible work policies even after the COVID-19 crisis ends, the ‘new normal’ of employees working from anywhere will alter IT spending patterns going forward.”
When it comes to IT strategy, different companies require different things — there is no one-size-fits-all solution. But companies seeking to support remote work should be looking at solutions that increase productivity, efficiency, and security.
According to Dean, companies should be asking themselves:
- What types of tooling do we need to implement to ensure that business doesn’t slow down?
- How do we protect our business, our people, and our systems?
- What are the things that are going to help maintain productivity and support business monetization?
Failure to recognize the importance of investing in IT transformation can have disastrous results. Just look at Toys R Us. Once the leader of the toy industry, Toys R Us filed for bankruptcy in 2017. In the podcast Wharton Business Daily, experts said, “Toys R Us has failed to innovate its business model, incorporate technology or adapt to changing consumer behavior.”
Focusing on brick-and-mortar stores rather than innovating its business model ultimately left Toys R Us on the shelf as retail giants like Amazon, Walmart, and Target developed strong e-commerce platforms. As Wharton marketing professor Denise Dahlhoff noted on the podcast, “Kids spend way more time playing online video games. You don’t have to go to a Toys R Us store for those. In addition, the shopping experience has moved online, and Toys R Us hasn’t been the strongest in that area.” If “the way it’s always been done” isn’t working for you anymore, try something new! To stay ahead of the curve, leaders should focus spending on strategies that use research, design, and bold thinking to launch their business in innovative new directions.
Getting outside perspective
Have you ever looked at a problem so closely that it became hard to see the forest through the trees, so to speak? Sometimes an outside perspective is exactly what you need to find the solution. As a long-time, fully distributed remote company, Theorem has the experience to guide you through budgeting for IT — during this pandemic and beyond. Theorem’s team of experts can come in and determine what problems you’re actually having versus the ones you think you’re having. It’s what we live and breathe every day.
“Now is the time to make a bold bet — investing in technology, training your workforce, or expanding your business through acquisition will lead to huge payoffs if you time it when everybody around you is being (overly) cautious,”
<quote-author>Alex Finnemore, Theorem’s Head of Revenue.<quote-author>
Cutting costs may seem like the easy answer. But you’ve got to spend money to make money. We can help you target exactly how to shift your budget during this uncertain time to prioritize technology and innovation. With the right IT investment strategy, your company can thrive, grow, and profit. Tell us your 2021 budgeting challenges. We’re here to help. Reach out to us at email@example.com or call 1 (888) 969-2983 to book a complimentary consultation.