As concerns about an economic downturn mount, it’s prudent for companies to reassess their plans and budgets. One aspect is how organizations think about their technology initiatives. Given the current climate, is it necessary to consider course corrections? Should any long-term initiatives change? There’s a lot to consider.
Between the months of April and May, the stock market fell for eight consecutive weeks, its longest streak since May of 1923. The S&P briefly dipped below 20% (which typically signals a bear market), and according to the International Business Times, 57% of surveyed CEOs now believe that we’re due for a recession.
We thought this was a good moment to sit down with Barry Gerdsen, Boomi’s CTO of ISV/OEM Partnerships, to talk about how changes in economic conditions could impact multi-year IT commitments and projects.
There’s an active debate now among economists about a recession. Do you think this is something we should worry about?
There are a lot of reasons to suggest that’s where we’re headed. Foremost among them is inflation. According to the most recent reading of the Consumer Price Index, inflation stands at 8.3%, and the Producer Price Index is clocking in at 11%. With the Russian/Ukraine conflict, the ongoing supply chain issues, rising interest rates, and a hawkish Fed committed to fighting inflation, the risks to growth are real. Any one of these things could have prompted slowdown fears, and here we’re faced with all of them at once.
Should we expect technology budgets to tighten in the short term as a result of this uncertainty?
It’s already begun to happen in certain parts of the market. Several big tech companies have recently announced hiring freezes or layoffs, and previously red hot sectors like social media and crypto have reported poor quarterly earnings.
What effect do you expect this to have on IT hiring?
The tech unemployment rate currently stands at a low 1.7 percent. Wages for technologists are high, and there is intense demand for experienced and productive IT professionals. For this reason, if a recession were to materialize, most profitable companies would first employ hiring freezes rather than lay off IT personnel en masse. For yet-to-be profitable startups, however, the cuts will be deeper.
What is the best way for organizations and their IT departments to protect themselves during a downturn?
I can suggest several ways. First, understand how downturns have played out in the past. Second, consider and manage the future uncertainty they create. And third, take advantage of the technology that is available right now to help manage risks.
To my first point, not all downturns are the same. Historically speaking, the average length of time that recessions have lasted following the confirmation of a bear market is 285 days. In 2020, the downturn was severe but short-lived, thanks to tremendous levels of policy intervention. Conversely, the unwinding of the dot-com bubble starting in 2000 took almost two years (637 days).
In this case, the slowdown will last however long the Fed needs it to last in order to tame inflation. The Fed will continue to hike rates and quantitatively tighten until business conditions result in price stabilization.
Historically speaking, how have slowdowns pressured IT departments?
In the past, this type of slowdown has caused disruption in several ways:
- Planned projects change, get pushed, or get canceled altogether
- Staff turnover occurs
- Businesses that can’t find their way to profitability fail
Can you describe the nature of the expected staff turnovers?
Most people immediately think “layoffs”, but the reality is that in a downturn, employees are just as likely to leave a company of their own volition. Some won’t tolerate changing objectives and conditions. Others won’t like the inevitable “do-more-with-less” edicts, and still others may question their motivations for working. For example, consider all the equity options issued by companies that find themselves out of the money in a falling stock market. Remove that incentive, and other employment opportunities begin to look more attractive. For this reason and others, it’s not uncommon for an IT department to look different at the end of a down cycle than it does at the beginning of it.
How can IT decision-makers get ahead of the curve and successfully navigate these future potential risks?
Recognize your own limitations when greenlighting projections. No one has a crystal ball, so the most prudent strategy involves moving development efforts forward in a careful way that mitigates recessionary risks. To do so, you might consider:
- Prioritizing shorter time-to-value projects. Even in good times, IT can feel like a “what have you done for me lately?” business, but this is never truer than when times get tight. Now is the time to be nimble in your project planning. Keep your time frames short and strive to deliver discernable value at each checkpoint in the project plan.
- Minimizing long-term, multi-year efforts. Investigate ways to alleviate the burden of development and expedite delivery. You’ll also want to understand the risks inherent in maintaining and supporting what you develop. Keep in mind that there are times when even a worthwhile project can turn into a mistake due to bad timing, a poor approach, and/or the inability to see things through to completion.
- Streamlining processes. There’s usually a lot that can be done to improve internal processes and make them more efficient. The problem is that organizations don’t pause to investigate them when times are good, because they are too busy selling products. However, this is an opportunity to eliminate inefficiency when the markets slow down. Doing so will allow you to be leaner and more focused when market conditions improve.
- Prioritizing the customer. In a downturn, realize that you are now in a buyer’s market, and your customers have the upper hand. You’ll want to prioritize building features that will improve their experience and make you indispensable to them. Creating and delivering intuitive and differentiating customer experiences is the best way to survive a recessionary cost crunch. Remember that your customers are also looking for ways to do things better, cheaper, and faster. Take the time to consider how you can streamline their processes as well as your own.
- Empowering your employees. Have a plan to develop your talent in a way that ups their productivity and helps them contribute value to your bottom line. Doing so will demonstrate to your employees that you’re investing in their success, which makes them feel more secure in their roles despite the tumultuous macroeconomic environment.
- Taking advantage of what’s available right now. Never in the history of man has there been more technology available to enable you to do more to create value. Take the time to research the advantages of enabling your workforce with better tooling. Doing so will position you for success in all five of the key areas outlined above.
Why is it smarter in this environment to favor projects that offer a shorter time to value?
Uncertain macroeconomic environments offer the greatest potential for project disruption – either from plans changing or people changing. You’ll thank yourself later for anything you can do to bring down your time to value and mitigate the risk of interruption. What’s more, doing so will give stakeholders the confidence that you can be counted on to deliver, even in the most challenging times.
Do integration projects take on a higher priority in a recessionary environment?
Integration never stops being a priority. Businesses have come to realize that the proper integration of data is vital to future-proofing product and service offerings in a way that can achieve competitive differentiation. They also understand that aggregating data from various sources allows them to develop highly targeted strategic plans. There’s nothing an organization values more than the quality of the data it bases its decisions on.
How does an integration platform as a service (iPaaS) add value?
The beauty of iPaaS is that it can accomplish quite a bit, including:
- Facilitating end-to-end integrations in a hybrid application ecosystem
- Enabling new capabilities within an existing product
- Orchestrating business development efforts that feature data use and feature governance requirements
- Enabling complex data tracking and reporting through easy-to-customize dashboards
- Offering complete UI-driven customer journeys that can automate sophisticated workflows
These are just a few examples, of course. The reality is that since iPaaS can underpin many different development efforts, it offers a far-reaching scope of potential uses.
What role can iPaaS specifically play in helping IT weather a downturn?
A good iPaaS can turn long-term projects into much shorter-term ones, which you need in this environment. It does so by abstracting away the technical complexity of coding and allowing you to develop integrations using a centralized console for configuring connection details to your endpoints. Typically, iPaaS provides pre-built connectors, business rules, maps, and transformations that facilitate the development of applications and orchestrate integration flows. Standardizing on a virtual platform that is much faster for development, easier to maintain, and more flexible to modify can greatly simplify an organization’s infrastructure and exponentially increase its output.
What can a business using iPaaS hope to achieve in terms of ROI?
A recent study of customers using the Boomi AtomSphere Platform, conducted by Forrester Consulting, found that “the 3-year ROI on an iPaaS platform exceeds 410% and offers an investment payback in as little as 6 months. During this period, integration development time accelerated by 65%, allowing companies to save time and money, reduce risk, and get more done.”
In short, iPaaS is a worthy investment, especially considering the flexibility, efficiency, and risk mitigation advantages it offers an organization during these uncertain times.
Integration doesn’t have to be difficult. To learn more about the benefits and challenges of hand-coding vs. iPaaS, download our eBook, “The Developer’s Guide to Integration Approaches.”