An Economic Downturn Looms. How Should Government I&IT Leaders Respond?

Author(s): Jim Kirk

Stock market trends superimposed over the Canadian flagThe transition from summer to fall brings cooler weather and Halloween candy, and for many government information and information technology (I&IT) leaders, it restarts the budget and business planning cycle for the upcoming fiscal year. Economic forecasts are primary inputs into this exercise and can determine whether the year ahead is one rich with investment or tempered by austerity. With economists anticipating a recession in early 2023, the impact on government IT departments is unclear.

While some may assume a looming recession will force universal belt-tightening across government departments, IT World Canada suggests the majority of organizations will increase their technology budgets.

“In hard economic times, you would expect companies to pull back and you would expect those pullbacks to include IT. The big surprise is that spending on IT is expected to increase even among companies that are actively cutting back elsewhere to prepare for a recession,” said Peter Tsai, senior technology analyst at Spiceworks Ziff Davis.

The thinking here is that hiring will continue due to the ongoing labor shortages and the operational and strategic necessity of continued investment in cloud services. IT is often viewed as a source of innovation leadership, so times like these are opportunities to leverage new technologies and embrace new perspectives on how to invest the resources you have. This need for innovation in recession is not a new concept. It was identified as a key differentiator by the OECD for municipalities to weather the last recession.

As a leader in the public sector for 20+ years, I had the “pleasure” of managing budgets and plans in accordance with the ebb and flow of the economy. My time in local government started in 2011, during the recovery from the last recession. This period could be characterized as a period of austerity as we were asked to find 2% in operational savings in addition to covering our inflationary compensation increases across multiple budget years. I doubt any of you would be surprised to hear that our elected officials were not supportive of an increase in property taxes.

The levers I had at my disposal during this period were opportunistic contract optimization and a partnership with procurement to leverage vehicles established by higher levels of government for commodity products and services (i.e. computers and telecommunications). The latter not only gave us better unit pricing but also removed much of the overhead associated with procuring/renewing those services and being primarily responsible for managing those vendors. The upshot of this effort was that although we had to scratch and claw, we were able to meet these financial expectations with minimal impact to service or project delivery.

To show leadership during periods of fiscal uncertainty, I&IT leaders need to be deliberately flexible and show an ability to put their foot on the gas or gently pump the brakes. What follows are strategies and tactics you can use to continue moving forward with whatever cards you are dealt:

Cost optimization includes project prioritization, workforce optimization, vendor management, and asset optimization, and strategies can be reactive, proactive, or strategic.

  1. Clarify your cost optimization mandate and thoroughly assess your options. As discussed above, existing contracts are a logical place to start to ensure you are receiving good value for money. Further, it’s a logical time to consider more economical products and services. From an asset optimization perspective, you can consider the deferral of planned PC refreshes and/or accelerated adoption of bring your own device (BYOD) offerings.

    The old adage “Never let a crisis go to waste” may help you initiate or accelerate an application rationalization initiative. Such an effort can eliminate duplication, waste, and inefficiency, which helps during periods of fiscal constraint. Leveraging the economic reality in your approach to organizational change management may help manage resistance, especially with vocal support from senior leadership.

    At face value, workforce optimization may seem less viable in government due to a largely unionized workforce. While layoffs are not common, hiring freezes are, so it is an excellent time to identify and lean into your self-service strategy. You should also identify what automation opportunities exist and move fast by defining minimum viable automations. This will free up capacity to focus on other priorities during a time when the organization may be purposely sitting on vacancies as a cost-saving measure.

    A review of project prioritization could take you in different directions. The deferral of planned projects is a step that may help reduce spending and address a resource crunch. Alternatively, you may consider rebalancing your portfolio of projects to surface initiatives that create cost optimization opportunities elsewhere in your organization’s operation.

  2. A graphic showing money, invoices, and credit cards.Build muscle around managing your new (and probably increasing) cloud costs. Only 22% of organizations are staying within their cloud budget. Yet 96% of organizations believe they could save money through more focused optimization efforts.

    Whether you’re leveraging Microsoft Azure, Amazon AWS, or Google, you have opportunities to drive optimizations that create short-term savings while establishing the discipline necessary for long-term cost containment.

  3. Continue to drive cybersecurity improvements, even if they are tactical. A recent article published by KPMG noted that spending on cybersecurity is being de-emphasized with a recession looming, especially in larger organizations. Out of the polled organizations, 24% said they do not have a plan to address a potential ransomware attack. That’s an alarming statistic in 2022.

    If your organization doesn’t have cybersecurity on its critical list for 2023, at least ensure your basics are covered: Have a response plan for ransomware and continue with security awareness and training programs. Running a budget deficit might be a bad look for an I&IT leader, but having to respond to a significant security incident is much worse (and more costly to boot).

Our Take

As fiscal uncertainty makes budget and business planning more challenging for 2023, I&IT leaders need to be thorough and have a flexible plan that provides options for their organization to consider. While difficult, these periods provide an opportunity for IT to step up and set an example for the organization to follow. Fortune favors the prepared.

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