3 ways IT Leaders are adjusting their spending for Q4 and beyond

In the wake of an overwhelming response to Windward’s 2020 Information Technology Economic Impact Study, CEO Sean McDermott wanted to delve deeper into some of the answers from Fortune 1000 IT leaders.

In part two of our series we look at where the Coronavirus pandemic has impacted spending for Fortune 1000 IT leaders and where they are making changes in their budgeting. Sean conducted interviews with respondents in various industries to gain a deeper layer of insight into how IT leaders were planning their spending for the remainder of 2020 into 2021.

Overall, IT leaders don’t expect to reduce internal staffing at a rate in step with revenue decline. Companies are trying to hold off on staff reductions as much as possible to protect jobs and maintain their intellectual property.

Outsourcing is the winner here, as 60% of respondents are expecting minor to no impact. This is due mostly to long-term outsourcing contracts that are very difficult to renegotiate, so there is little room to make changes.

The big losers, as expected, are consultants, with 60% of respondents expecting to cut external consultants, with 39% expecting cuts of 15-30%.

The IT Director of a major medical facility looked to forgo large commercial changes as an initial cost-cutting measure.

“We’ve slowed down our commercial investments around our large scale ERP transformation or PLM transformation, that’s all slowed down because we were trying to conserve cash as an organization in product life cycle management. So when you’re in manufacturing, it’s all your systems that allow you to manufacture and keep records and whatnot. What we are doing though, as we’ve slowed down our capital investments in our transformational programs is, we’re taking a double and a triple look at ‘how do we make sure what we’ve built to date is sustainable?’ ‘Are there any gaps?’ Like the question you asked about security and tuning we’re doing that in our transformation. So while we’ve cut commercial capital spending, we’re looking at our own internal resources to make sure things are ready, locked, and loaded. So when we do kick things off, hopefully in Q1, we’re not scrambling at that point. We’re not patching. We’re now doing the things we should have done during this lull to make sure we’re ready to accelerate.“

On Cost Cutting on Consultants:

“I think the first place they could cut is capital is projects and then riffs. And where can I start to lose my head count where it won’t burn me because I can just rent that labor or arbitrage it out. And I think that it’s an ugly truth that nobody wants to talk about. Because it costs people their jobs. I’m just being far more pragmatic and transparent about it. Because I’ve seen the cycles go through it. Managed services rarely ever get cut because you’ve already got cost arbitrage to do the work that you don’t want to be doing. So it goes to the business of running IT. We’re in the business of making medical device products. Why do I want to continue to hire professionals who know how to fix my ERP systems? I can buy that service at a lot lower rate with a lot more reliability. I don’t think that’s going away.“

Sean: And what was your thinking behind your managed services?

“We are a heavy managed services shop. And as I look at what COVID did this year to us, I know what we spent, we slowed down our capital spend, but we did not slow down or shut off our operations. A lot of our operations are with managed services. And the one thing COVID is reinforcing with me is global and enterprise IT shops are going to have a floor of how many people they need to keep. And I think that ceiling of, ‘Hey, when things are normal we’re a 500 person IT shop’. And I think there’s also my floor, my bare necessity to run, but things are great and things are humming, but I’ll really need a thousand people. I think that’s what COVID is going to teach us, is you’re going to have to stay as close to your floor as possible forever, if not try and lower your floor.”

The IT Director of a global travel agency has frozen spending across the board due to the large decrease in international travel.

“One common theme we’re hearing is that a lot of the new spending is basically frozen. And that a fair amount of effort went into remote working. But that’s kind of settling down now, right? We’re four months into remote working and that’s settling down. And a lot of companies that I’ve talked to are now thinking about how to prepare for the future. When new initiatives may start coming let us have our processes cleaned up. Let’s relook at how we’re doing things. Let’s spend time internally to kind of clean house in preparation of when we might be able to start moving forward again.”

There’s no getting around it. IT leaders are making tough decisions related to staffing, outsourcing and consultants. Ultimately, that is affecting IT employment around the country. The good news is that specialty IT talent in areas like machine learning are also in high demand. It would be wise for all IT professionals to start learning more about the move to artificial intelligence and machine learning as it will drive the next wave of growth for the industry and allow IT leaders greater flexibility with talent.

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