Executive Voices 5 mins read

When the economy tightens, don’t pull the purse-strings on tech investment

CEOs in North America are optimistic about their companies’ profitability, with 95% expecting it to grow or remain the same in the next 6-12 months, despite inflation and recession signals. The reason for this optimism is the ongoing investment in technology.

Duncan Burford Duncan Burford

Economic challenges force decision making down paths traditionally related to cost reduction and/or efficiency finding. But in the last few years – specifically those defined by the COVID-19 pandemic – it has become clearer that investment in the right technology can help organizations to overcome many of their most pressing challenges.

So where does that leave the technology industry? We surveyed a group of CEOs in North America to gauge their intentions. We found that a lot of CEOs actually remain buoyant about where they’ll be in a year’s time: 95% expect their company’s profitability to either grow or remain the same in the next 6-12 months. This is surprising with inflation remaining high (though levelling) and signals of impending recession on the horizon.

This could be because technology implemented in the right way and focused on the right problems can build resilience. It can help collect, analyze, and share the data needed to make better decisions. It can identify inefficiencies in processes that you may not know even existed. These outcomes can help companies to survive and thrive and show a pathway for technology investment and strategy.

CEOs must see their investments in technology as enabling them to get ahead during a bear market. This is why 95% of them are either diverting more resources to digital transformation or already have enough in place. Only 5% are decreasing spend here. It’s clearly a priority, for the reasons we’ve already mentioned. But it’s not just about resilience, it can be made to be about better innovation and growth opportunities. Nearly three quarters (73%) also say they’ll accelerate new product development.

Making the right investments

CEOs see that they have made the right investments in the last few years and they’re ready to go with what they have. This could be why more CEOs are focused on increasing investment in existing tech (83%) than new technology (76%). Part of this will be driven by the desire to extend the return on investment from those initiatives. Some of it will likely be because investing in new technology inevitably brings with it a certain degree of technical debt that must be managed in order to maintain the effectiveness of those platforms and solutions. Last year we did some research that showed 78% took on more technical debt during the pandemic, now they’re managing it.

To emphasize this point further, 14% of CEOs are actually decreasing spending on new tech, compared to only 5% on investing in existing tech. There is also less risk in working with what you have compared to investing in new initiatives, which at a time of increased scrutiny of spending could provide more leeway to experiment with new initiatives in other areas.

Investing in people supports technology investment

The cultural side of any project or transformation is now generally accepted as being of equal or greater importance than the spending on the technology itself. At a time when the skills shortage is very real, CEOs need to prioritize training their current employees and not simply rely on new hires to deliver on these tech promises. 

However, this is one area where many companies are seeing slightly skewed priorities. While 66% are increasing investment in hiring new workers, only 61% are increasing investment in up-skilling current talent. What’s more, 24% are actually decreasing spend on up-skilling current talent, while only 15% are decreasing spend on new hiring. While hiring new employees might often seem like a quick fix, the combination of on-boarding time and the pressure for cultural fit to be just right can make for a high-pressure introduction for new employees.

It’s also been shown in our annual Reality Check report that 84% of companies feel like they would lose employees without a transparent sustainability strategy. And despite it being a high priority for almost every company, it is being put on the shelf by that same number of companies – 84%. Hiring new employees comes with an understanding that many different conditions are right. It’s still a seller’s market in most countries and finding the right talent is tough. A more long-term strategy is to invest in internal training and development to nurture key skills. 

Flexible for the future

As conditions potentially worsen, these actions could change: 24% of CEOs say that economic forecasts predicting a deeper/longer recession would prompt significant actions. However way more (43%) said that real world issues like supply chain disruption and product/materials shortage would do that. The remaining CEOs cited government regulations (15%), labor market shifts (12%), or geo-politics (5%) as the main prompt for action. 

The focus on external events emphasizes the necessity of a resilient business model. Digital, connected businesses are the most resilient. They have the greatest level of visibility of the factors that affect their success and have the data on hand to find solutions and adapt their course for the best outcome. This connection across the business comes from leaders who can see the value of investing in the right technologies: mission critical systems that can help businesses to succeed in even the toughest conditions.