Chief information officers say they are adapting to a shrinking economy in a range of ways, preparing for the prospect of tighter budgets and evaluating their relationships with technology partners and suppliers.
Concerns about potential recession are rising. The Commerce Department on Thursday said the U.S. economy contracted for the second straight quarter. Inflation also is at a four-decade high, prompting the Federal Reserve on Wednesday to raise interest rates, with more increases expected. While the decline in public and private tech company valuations doesn’t directly affect corporate tech spending, it’s one more negative signal that could make companies generally more cautious or perhaps threaten the viability of smaller tech vendors down the road.
Information-technology spending at big companies is largely holding steady so far. Still, CIOs and other IT leaders say they are beginning to prepare for the possibility of tougher times ahead. They say they are figuring out which projects would be most important to defend in the event of budget cuts, and monitoring the health of vendors that might be vulnerable in a protracted economic downturn.
Additionally, they say they are looking at the opportunity to hire valuable workers who lost their jobs at other companies or renew technology contracts on more favorable terms.
“We see the economic climate as both a challenge to navigate but also as an opportunity to attract top talent, as well as perhaps gain favorable negotiating leverage in the market,” said Rob Franch, chief information officer of Carriage Services Inc., a New York Stock Exchange-listed provider of funeral and cemetery services based in Houston.
Carriage Services thinks it’s a good time to invest in technology and those plans have the full support of its board, according to Mr. Franch. “However, our strategy and planning has a narrower margin for error,” he said.
A key factor for managing IT through the economic downturn is maintaining the ability to quickly adjust tech spending priorities and expectations, say CIOs.
“When economic change happens, it’s normal and natural that organizations pull back, scrub their spend and tighten up,” said Colleen Berube, CIO at software company Zendesk Inc. Ms. Berube said many technology leaders, herself included, are going to be asked to think strategically about spending and to make adjustments in the year ahead.
“When economic change happens, it’s normal and natural that organizations pull back, scrub their spend and tighten up.”
“The need to save results in increased focus on optimization, simplification and automation,” she said. “Demands on technology teams may increase during this time.”
Ally Financial, the Detroit-based bank holding company, has a prioritized list of tech initiatives, which helps it control spending and pivot based on needs, according to Sathish Muthukrishnan, Ally’s chief information, data and digital officer.
“There are prudent measures we are taking to prepare ourselves for the tougher economic climate,” Mr. Muthukrishnan said.
For Mark Brooks, CIO of Centene Corp. , a managed-care company based in St. Louis, this is a moment for CIOs to think carefully about their relationships with IT vendors, some of which could be vulnerable in a long-term economic downturn.
“My sense is the instability in the market we are experiencing today translates to the importance of vendor-CIO relationships. We are all in this together. Let’s collaborate for the greater good,” he said.
Mr. Brooks said relationships with smaller vendors can be a valuable source of innovation, but that in times of economic uncertainty, it’s important to have alternatives at the ready, in case a smaller or more vulnerable company goes under.
While providing support for vendors is important to CIOs, they are also looking out for the opportunity to renew contracts on more favorable terms.
“If you are at a point where you are prepared to renegotiate a contract or re-up a contract, then absolutely you look at those opportunities and you take advantage of those,” said Tim Crawford, founder and CIO of strategic advisory firm AVOA LLC.
—Angus Loten contributed to this story.
Write to Isabelle Bousquette at Isabelle.Bousquette@wsj.com
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