Is a Recession Coming? Here’s How to Cut IT Costs Wisely
A growing number of financial experts predict that a global economic slowdown — possibly a recession — is on the way. As CEOs prepare for an economic decline, they’ll be asking their chief technology officers and IT managers to cut costs.
The news is grim — thousands of tech employees have been laid off this year, and more companies are announcing plans to make hiring cuts:
- In June, Tesla CEO Elon Musk reported having a “super bad feeling” about the economy and announced plans to cut 10% of his company’s salaried staff.
- Coinbase recently announced that it’s laying off 1,100 employees, or 18% of its workforce.
- Several big tech companies, including Microsoft and Meta, are slowing down or freezing hiring.
Even though tech layoffs are on the rise, firing people isn’t the only way to save money.
Here’s a look at some strategies IT managers and CTOs can follow to get their companies through an economic slowdown while maintaining the ability to seize opportunities in a recovery.
Make a Plan with the CEO.
An IT manager must work closely with their company’s CEO when they’re analyzing the organization’s current business situation and mapping out a recession strategy, said Stanley Huang, CTO and co-founder at Moxo, a client management platform.
“From there, IT managers will have the knowledge to understand how they can operate accordingly,” he said. “Without a clarified company overview strategy, IT managers are more inclined to make ad hoc decisions, whereas they should be spending the time aligning IT goals with the overall business goals.”
Before making any cost-cutting decisions, an IT manager should determine with C-suite executives what’s essential to their company’s success.
Companies need to defend profits and revenue, so IT managers and CEOs should agree on a company’s key business drivers, said Helena Nimmo, CIO of Endava, a consulting firm focused on entrepreneurs and their companies.
“This enables conversations to be guided by concrete data, which helps avoid knee-jerk reactions when the request to cut costs comes,” she said. “It is important to have a factual picture of what is driving business performance before actions are taken.”
Reassess What You Have.
A zero-base approach in which each expenditure is evaluated based on actual need or cost can help identify money-saving opportunities within an organization.
“Re-evaluating unused and underutilized assets can help IT significantly reduce capital expenditures,” said Swaminathan Kasiviswanathan, senior director, DevOps at Kissflow, a work-management platform. “For example, if you have a virtual machine that has not been used for the last six months, that obviously tells you it’s an unneeded resource.”
A company can confidently downscale assets that are running at less than 10% to 20% utilization, he said. “This downscale doesn’t need to be drastic but can be done in a phased approach.”
The next step is to evaluate a company’s technical debt, in part by evaluating which resources are currently being wasted, according to Kasiviswanathan,
“For example, the default setting of the nodes a company uses might allocate 100 MB,” he said. “However, in reality, a company may need only 50 MB.”
Reexamining a company’s entire digital infrastructure can help the developers and engineers cull technical debt that’s been accumulated over the years, he said. “It’s the small things when accumulated that rack up significant costs to organizations.”
“Re-evaluating unused and underutilized assets can help IT significantly reduce capital expenditures.For example, if you have a virtual machine that has not been used for the last six months, that obviously tells you it’s an unneeded resource.”
— Swaminathan Kasiviswanathan, senior director, DevOps at Kissflow
Services that are already up and running should be reassessed during an economic downturn.
“Review the returns of recently introduced services,” said Mark Hopwood, principal consultant, security improvement and remediation practice at consulting firm NCC Group. “Are they delivering the benefits you expected, or should they be canceled or scaled back to save money while maintaining security?”
Cloud costs should be checked carefully, redundant services decommissioned when possible, and services scaled down or shut down when not in use, he said.
“For example, IT development environments often aren’t needed overnight and so can be shut down,” he said. “Active monitoring of the environments can ensure that they remain secure while the developers focus on creating value for the organization.”
Less Data, Not More.
CTOs and other technology leaders that want to ensure their companies are in a good position for a recovery can save money long-term by taking a look at how they manage their data.
“Enterprises can put an end to costly and complex data copies, duplication, and endless IT integration projects through adopting the Zero Copy Integration framework — an emerging standard in Canada being communicated to national and international standards bodies that defines a data-centric, as opposed to code-centric, approach for the design and delivery of new digital solutions,” said Karanjot Jaswal, chief technology officer for data-collaboration company Cinchy.
The Zero Copy Integration framework is an evolution of the privacy-by-design standard that decouples data from individual applications in order to eliminate silos and copies, and that introduces universally enforced access controls, he said.
“This enables better control and governance, helps in the creation of metadata, and helps everyone to better understand the enterprise,” he said.
An organization can be better prepared to seize opportunities in a recovery by implementing the Zero Copy Integration framework, but there’s a caveat for those that might see it as a quick fix when a recession hits.
The long-term benefits of implementing the framework properly would be significant, but the upfront cost wouldn’t be trivial, said Nitha Puthran, senior vice president for cloud and infrastructure at Persistent Systems, a technology services company.
“This needs to be designed into a solution, not adapted to it,” she said.
According to Puthran, companies could centralize their data by adopting the Zero Copy Integration framework, which means there’s only one set of data to archive and protect.
“It’s also one set of data to ensure you are in compliance with GDPR and all of the similar regulations,” she said, referring to the European Union’s data protection rules. “You can set retention for the archive based on the longest requirement for the data and be in good shape — and that saves in people costs and storage costs.”
Move to the Cloud.
A recession might not seem like the best time for a business to make infrastructure changes, but, despite an initial investment, a company can reduce IT costs by shifting to the cloud.
“The advantage of cloud is the ability to scale both horizontally and vertically as your business is impacted either positively or negatively during tough economic times,” said Puthran.
During a recession, not having to spend money on IT where it doesn’t contribute to business value is a win, and this is where migrating to a cloud environment can be a major benefit, she said. “If your business benefits during a recession, you can quickly scale up, but if you need to tighten spending as business slows, you can easily contract and expand again later as a recovery happens.”
Another advantage to cloud environments is data analytics, Puthran added, stating that a recession is a critical time for a company to understand its customer base’s buying habits and how those buying habits change during a recession. “With the ability to create a data lake and leverage analytics and machine learning in the cloud offerings, you can stay ahead of the competition.”
Think Carefully about Who’s Getting Laid off.
No one likes layoffs, but a deep recession may demand workforce cuts. However, any cuts must protect not only the core business functions but also leave room for growth after the crisis.
Many tech companies today have a combination of permanent employees and independent contractors. The primary reason behind using contractors is to give a company a flexible workforce that allows it to make quick adjustments, said Tim Rowley, chief operations officer and CTO of staffing firm PeopleCaddie.
“The first thing that a company should look to do is to rationalize its contractors,” he said. “The word ‘rationalize’ here is particularly important, as it is paramount that the company take a strategic approach to reduce its contract workforce rather than indiscriminately terminating all contractors.”
“The easiest thing is to say we’re just shutting down innovation. That’s not smart.”
— Pini Reznik, co-founder and chief operating officer, Container Solutions
Most companies prefer to make cuts within support functions rather than revenue-generating functions, so contractors that work within a department that doesn’t directly add to profit would be the first in line to be let go, he said.
“At the other end of the spectrum, those contractors that sit within the company’s profit centers and have highly specialized skills would be the last to be terminated,” Rowley added.
If more cuts are needed after a company completes its contractor rationalization, it can go through a similar process with its permanent employees, he said, noting that some contractors may be of higher strategic value to a company than some permanent employees.
Even if some permanent employees have to be let go, an IT manager should be careful not to shut down an entire team, particularly one that has specialists working on future product development.
When companies shed employees, they shouldn’t get rid of the entire innovation team, said Pini Reznik, chief operations officer and co-founder at Container Solutions, a consultancy that guides companies through cloud native transformations.
“The easiest thing is to say we’re just shutting down innovation,” he said. “That’s not smart.”
A company has to come out of a crisis with different offerings, and it’s very important that retains its innovation capabilities — not to simply work on the same products it was building two years ago — and the ability to change, said Reznik. “Even if it’s just a couple of people, just keep the spark.”
Building a new innovation team from scratch could set a company back years, he said, and is much more difficult than expanding an already existing unit — even if it needs to be downsized during a recession.
“While there’s no pain short term, long term you shut down your future,” he said. “The product that was supposed to go to customers two years from now just shut down, and you cannot just restart it.”
When you fire people, they get other jobs, and it’s not so easy to just bring them back, Reznik added. “With specialists, it’s very difficult to find somebody to replace them.”