As discussed in some of our previous blogs, market indicators continued to show signs that a recessionary environment was on the horizon. Today, it became official wherein the U.S. recorded its second straight quarter GDP retraction. Preceding this news, were some unfortunate earnings reports coming from Fortune 100 companies (Walmart missed expectations on lowered forecasts). Firms are carrying unanticipated levels of inventory and are having to heavily discount to get rid of it, which are all harbingers of low growth, lower revenue and tighter margins. From our blog titled, “CEOs: #1 Action to Protect Your Organization from The Looming Recession”, we proposed an action plan that proves universal to all stakeholders looking to find operational cost savings to hedge against this recessionary pressure.
Right now, we have all the magic working in the wrong direction on executive forecasts:
- Highest inflation and energy costs in several decades
- Low labor participation rates
- High inventories
- Slowing demand
- Federal Reserve raising rates
With most forecasts predicting several quarters of slow down, how can executives best align their business now to these market conditions and not only maintain productivity, but potentially improve it? Decisions must be made, usually starting with operational cost cutting measures (layoff, cutting non-necessity programs, compensation, etc.) or FIND savings in areas of the business. We’ve found out of all these scenarios, one in particular where our Clients have had success in cutting costs with no diminution of value or productivity:
IT Supply Chain Optimization (cutting vendor costs).
We do not buy into the adage that you can’t ‘have your cake and eat it too’. Some organizations will employ all these strategies simultaneously, but we would argue strongly to start with an area that is best positioned to give you both savings and improved performance. IT Supply Chain Optimization. Why start cutting where you’ll draw blood immediately like lay-offs or cutting programs that have an immediate impact on business value, when saving 30% to 40% on existing IT portfolio spend can deliver many millions of savings to use in other areas or save for the rainy days to come, and don’t impact business value?
Cutting operational costs doesn’t boost your productivity, nor does it effectively hedge against current recession risks (though it may have some positive short-term effects). Thus, if you represent an organization with constituents of differing levels of influence (stockholders), cutting back operational costs can come with severe consequences to both your bottom line and brand reputation.
Other “Recession Risk Management” articles suggest that readers take actions based on risk management and “proven” strategies that helped alleviate recessionary environments. Before settling on your downturn strategies, consider that this recession could look far different than recessions of years past. While on the surface, the 2022 recession might look like the Great Recession of 2008, Inflation rates in 2007 and 2008 pale in comparison to Inflation rates of today. With inflation rates of 2.85% and 3.84% respectively during the Great Recession, current inflation rates sit at 9.1% (as of June 2022). Other factors are present too as outlines earlier in this writing. Clearly, each recession is not the same… thus risk management strategies should adapt, revise, and review past practices in recessionary environments to ensure that these subsequent actions don’t have unintended consequences.
In the long run, organizations that choose to slash operational costs instead of sponsoring strategic cost out programs (like NET(net)’s Savings Cloud IT Portfolio Optimization), will continue to suffer in the short-term with decreased productivity, exacerbated inefficiencies, and softening business forecasts until this recessionary period subsides… and who knows how long that might take.
With ZERO negative business implications, IT Cost Savings stands at the forefront of ways key business executives can prepare not only their organizations but their people for any negative consequences that come from the recession. Will it be enough to cover the entire organization’s losses? In most cases it may not, but it’s clearly (and strategically) the best place to start, and certainly puts the sponsor of such programs in a commanding position.
Founded in 2002, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get and keep more economic and strategic value. With over 2,500 clients around the world in nearly all industries and geographies, and with the experience of over 25,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client captured value in excess of $250 billion since 2002. NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact us today at firstname.lastname@example.org, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and relationships.
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