IT readiness for the storms ahead
IT alignment and preparation are needed for the next 18 months
What are we seeing in the markets?
As we explored in our last article, the winds have shifted and we are seeing strong indicators of a recession and certainly a significant economic slowdown in the back half of this year. Finance interest rates are almost double what they were as of this week last year, and inflation is at a record high across numerous consumer indices.
Within our own client base, we are seeing what we anticipated in terms of slower hiring, cautious spend and a general “belt tightening”. What we are also seeing is a surprise in the number of available candidates - as well as what appears the first easing of the tech labor market since early 2020. In a recent conversation with an X1 service partner for managed IT services, they have seen an uptick in applicants to the tune of 3-4X what they would normally receive. That is a stark contrast from recent years, where positions were going unfilled due to a lack of qualified applicants. This has quickly changed this past quarter, with a much larger volume of qualified applicants actively pursuing positions. This may also correlate with a larger number of employers requesting in-office presence at least a couple of days per week – a trend that is on the upswing as employers examine overall productivity of their employees.
We’ve also seen a significant downshift in the number of due diligence efforts in the Private Equity and lender spaces. Last year was a record-setting year for PE groups. The momentum continued in the early part of 2022, but we’re now seeing a slow down in the number of active or potential M&A activities, fueled (in part) by concerns with where the economy and interest rates are headed.
"Mortgage demand drops to 22-year low as higher interest rates and inflation crush homebuyers" - Mortgage Bankers Association, July 2022 adjusted index
What can you be doing?
The key thing you can be doing at the moment is solidifying your plans for the impacts ahead. Don't wait for the storm to get here before taking action.
Develop or Update Your IT Strategy
Continue to be forward looking and ensure your IT strategies are in line and adjusting to your business needs. The strategies developed amidst COVID-19 in 2020 and in the economic resurgence of 2021 are not likely to be sustainable over the next 18-24 months. Keeping an open line of communication across all management levels is as important as ever – working collectively with varied business units to pivot in response to customer demand and fiscal tightening.
If you don't have a clearly articulated IT strategy (or if you don't trust it) - now is the time to address that need. If you have doubts around the historic performance of your IT organization or service providers, your situation is not likely to improve on its own. By contrast, if you've seen solid performance and improvements from your IT team...make sure they are adequately positioned to endure potential downturn or financial impacts to the organization that could slow or halt improvement projects.
Renegotiate Contracts for Better Terms
All contracts come to an end. Perhaps some of your vendor agreements are coming to term over the next 12 months...or perhaps this is just a good time to evaluate your options. As you are looking to renew software and service agreements, the key will be to press for flexibility of terms. We often forget one of the key attributes of contemporary services (cloud, SaaS etc.) is elasticity. Many traditional contractual terms – particularly for perpetual licensing – limit flexibility and your ability to align with your business needs during fast changing times.
Also consider that vendors and service providers will be looking to weather and survive these same storms. Better terms, increased value, previously unavailable options and open doors to discussions where historically closed...all of these things may be on the table. These opportunities sometimes create even better relationships with your vendors and service providers - offering the ability to solidify and extend relationships or improve service level expectations.
Ensure Service Transfer-ability
For equity-backed companies or those looking at a potential transaction in future years, it’s key to have transfer-ability of agreements in the event of a sale or merger. Many software and services contacts have inserted language that eliminates or hampers the ability to transfer those services in the event of a sale or merger…particularly larger players like Oracle. Trust us when we say that those vendors do not have your best interests in mind...we have collectively spent years (yes, you read that correctly) negotiating and attempting to battle the larger vendors for better terms for our clients.
Be certain you are working closing with your IT leaders as well as your legal team on both new and updated agreements. Where it makes sense, also consider bringing in a specialist who understands the licensing options for certain vendors like Microsoft, Oracle, Salesforce or your other large contracts. Having the ability to transfer your major IT agreements in the future is well worth the invested time and effort during negotiations, as a re-licensing event can prove to be incredibly expensive and will most certainly hold you back from meaningful initiatives and progress.
How Can X1 Help?
Our collective experience in assisting companies and running IT departments certainly includes "battening the hatches" for turbulent times ahead. Reach out to us and we can discuss your specific situation and how we might assist, including:
Assessing your baseline and current environment for savings opportunities
Assisting with contract reviews, options evaluation or negotiations
Developing and executing business-aligned IT Strategic Plans as your business pivots
Evaluating your internal team and vendors to determine the optimal balance of internal resource and outsourced support
Providing interim or long-term IT leadership for key company initiatives where your existing team lacks focus or bandwidth to execute