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COVID-19 Effect: Will the CFO Put Brakes on Technology Investment?

While the crisis, which has emerged after #COVID19 outbreak, is far from over, #CFOs have already swung (or will do so soon) into action. They are given the responsibility to assess the short, medium and long-term economic impact of #Pandemic on their businesses. Given the extraordinary uncertainly, CFO’s role is perhaps more critical now than ever.

Its imminent that CFOs must look into the risks and (may be the opportunities as well) posed by this outbreak. They will be required to build different models and (probably also alternatives) to quantify the its impact company’s balance sheets.

However, what I want to highlight is not this. While these are early signs of distress as they grapple with the situation, but one thing that is clear on the horizon is technology budgets will be axed.

A recently concluded PwC “CFO COVID-19 Survey proves it. The consulting firm found that 26% of the US CFOs anticipate layoffs. Meanwhile, 82% of CFOs are focused on cost cutting with 67% of them expecting deferring or cancelling planned investments. “53% of CFOs say IT spending will be cut.”

When the economy starts rebooting, what will happen to the budgeted tech investments? It’s an important question. In the same PwC survey 81% of CFOs believe COVID-19 will hurt their company’s revenue and/or profits this year and 61% feel they could return to business as usual if the virus would end immediately.

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On the similar lines, even Gartner surveyed over 300 CFOs and finance leaders during late March 2020. The findings of the survey display mostly similar sentiments. Due to COVID-19 62% of CFOs who took the survey are planning some cuts to selling, general and administrative (SG&A) budgets in their organizations this year. 38% percent don’t anticipate any cuts this year while 18% are planning to cut budgets in every category by at least 10%. Technology budget is also on their radar.

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Across-the-board cuts to every category of SG&A spend often turn out to be short-sighted,” feels Dennis Gannon VP, Advisory Gartner’s Finance Practice. “For example, we see evidence that the coronavirus has prompted a permanent shift to more work from home. This transition to large scale remote working puts additional strain on the IT department. Therefore, forcing the IT infrastructure group to bear the same cost reductions as another functional area could expose your organisation to new risks or negatively affect business continuity,” he feels. This is a right assessment but will the CFO pay any heed?

 Yet another set of data point come from Enterprise Technology Research (ETR) which polls large numbers of CIOs and other senior tech executives about their spending intentions. Results released from a recently concluded survey by ETR suggest that global IT spending this year now looks as if it will be flat, though the ongoing economic fallout from COVID-19 could well drag it down into negative territory.

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 Going into 2020, ETR estimates that executives were expecting a 4% increase in global spending but the new estimates based on the responses from 1000 odd tech leaders in America, Europe and some Asian countries indicates a big shift in expectations.

“Enterprises are moving towards a ‘keep-the-lights-on strategy’,” says Sagar Kadakia, ETR’s director of research. He also indicates that the CIOs’ outlook has become far more pessimistic in just a few days as its survey results were impacted by a wave of worsening news about the spread of the coronavirus.

On the other hand, analyst agency Forrester issued a contrary figure that indicates global IT spend rising by over 2% this year. However, it comes with a caveat: There’s a 50% chance it could shrink by 2% or more year-on-year in the event of a deep recession.

Some of my Indian CIO friends and other IT leaders are also not too optimistic on the prevailing scenario.

A CIO (name withheld) from one of India’s top auto ancillary company told me that their CFO will now be joining the IT team for price/deal negotiations which wasn’t the case earlier. “The current situation, with the first quarter sales almost negligible, will spell a doom for the entire FY 20-21. Forget new investments, we have been asked to terminate many service contracts or postpone payments or even downgrade services,” he told.

Jai Thomas, Vice President of Daily Hunt is of the opinion that it is time for businesses to focus on reduced CAPEX/OPEX. CIOs should work on optimising IT infrastructure and applications for scale and performance and be prepared for ruthless prioritisation,” he says.

Jagdish Belwal, former CIO of GE Transportation and Tata Motors and now the CEO of Jagdish Belwal Advisory feels the euphoria about Covid-19 bringing digital transformation is about to meet the reality check of a recession due to the economic situation. “Any IT initiatives which can show quick results in conserving costs may get priority. But that will be limited to organisations where the CIOs have slogged, worked hard on business transformation aspects end to end; and convincingly won debates of tangible and measurable value of IT initiatives,” says Jagdish.

Manoj Jha, CIO and Head of IT at BEML Limited agrees with the impact of slowdown and the resulting pessimism. He feels that companies will, for now, focus on keeping afloat and ensuring the statutory and humanity-oriented commitments are managed.

On the similar lines Uday Deshmukh, Head of ICT and Billion at EEDC Nigeria says that in short-term, IT will face tough times, even while paying for mandatory services. “Post COVID-19 all businesses will be redefined, which will be more technology dependent. I foresee typical revival timeline of two years for IT, till then cost cutting is expected,” he says.

Suhas Mhaskar, former head of Innovation at Mahindra & Mahindra and currently working as ED and CIO at Octave Innovation thinks that every organisation will strategise areas to save money or find ways of reutilising talent to increase revenue or create new revenue streams. A balanced approach will be the order of the day to fight the stress. “Investments in innovation and technology may come down for a shorter period. However, this will really separate the visionary companies/executives from the ordinary ones,” he feels.

Disclaimer: Some of the views expressed here and/or attributed to are entirely personal opinions of the respondents/CIOs. It has little or no bearing on their organisation’s thought process.

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