How Should CIOs Respond to Inflation?

Q&A with Robert Naegle, VP Analyst at Gartner

As consumers and businesses worldwide continue to feel the impact of inflation, it is emerging as a top concern among senior executive leaders. CIOs must understand the likely impact of this global surge in inflation on the IT organization and the enterprise, in order to respond accordingly.

Robert Naegle, VP Analyst at Gartner, commented on the impact of inflation for CIOs and the actions they should take to respond.

Q: What do CIOs need to know about the impacts that inflation could have for the IT organization and the business as a whole?

A: CIOs must first look at inflation through a business lens. Inflation is a pressing issue for CEOs, and it poses unique challenges in these unprecedented times. While the total impact of inflation is difficult to forecast, CIOs must begin planning for IT impacts.

This means that CIOs have three choices: spend the same and do less; spend more and do the same; or try and optimize in order to spend the same and do the same. If optimization is the goal, current resources will need to stretch – existing infrastructure will have to do more for longer, and existing talent will have to be more productive.

Q: How can CIOs plan for and respond to cost increases in IT contracts?

A: One of the most immediate effects of inflation felt by CIOs will be vendors implementing, or preparing for, price increases that will impact IT budgets. Working with sourcing, procurement and vendor management leaders, CIOs should identify IT contracts that have high exposure to inflation.

Pinpoint contracts that tie increases to indexes, such as a specific country’s Consumer Price Index (CPI) because variable indexes are likely to lead to dramatic cost increases. Document where such risks exist and adjust budget forecasts accordingly.

CIOs should compile a list of the vendors they cannot live without and those that may be dispensable. For vendors that are vital, look to enhance partnerships using win-win strategies where possible. Prioritize these contracts for negotiation, as renewal activity provides the vendor with the opportunity to increase pricing, but also provides a leverage opportunity to proactively negotiate cost protections. For less strategic vendors, explore options to consolidate or migrate to alternative vendors.

Q: How should CIOs shift spending to account for ongoing economic uncertainties?

A: With the proper planning and early action, CIOs can help guide their business through the storm and even emerge in a stronger position. Current economic conditions provide an opportunity for CIOs to strategically invest resources and maximize returns. For example, automating processes to facilitate fast and accurate data analysis can support the business in making sound financial decisions during times of uncertainty.

CIOs must align with the CEO and board of directors to understand the corporate plan to address inflation. Cost reduction should not be reactionary. It should be strategic and aligned with efforts being undertaken by the business as a whole. For organizations where cost reduction or optimization is required, CIOs must take strategic action to reduce or reprioritize spend.

Provide the CFO with a best-worst case budget inflation impact that showcases a range of expectations and aligns IT spend to priority business outcomes. Proactively manage all consumption by sharpening processes and investing in tools to dramatically improve cloud, software and infrastructure consumption controls. Communicate IT’s response to inflation widely, and ensure that business stakeholders agree on the significance, justification, timing and impacts of both cost management initiatives and new digital efforts.

Q: How can CIOs respond to the workforce impacts of inflation?

A: Hiring and retaining talent is an ongoing challenge for CIOs in 2022, and it is becoming an even more complex problem due to the increasingly competitive labor market and higher wage expectations that result from inflation. CIOs must act strategically to protect against talent drain. Identify key workers and compare incentive plans against replacement costs if they leave the organization. Create a “talent retention and incentive package” that can be presented to the CFO and CHRO that is designed to identify and retain critical skills.

CIOs should consider opportunities to more effectively utilize the people they already have by equipping talent with new digital skills. Reframe learning as central to everyone’s job, and embed learning into the flow of business activities to optimize outcomes. Leverage automation and digital product streamlining to support increased productivity, which reduces the volume of talent needed. Augment the IT workforce by empowering business technologists via low-code or no-code, augmented analytics, data science and machine learning platforms and tools.