How to deal with inflation while undergoing digital transformation

Graphic showing a red bar going up and up to signify inflation
(Image credit: Getty Images)

Digital transformation projects can revolutionize a business. These projects improve an organization’s self-awareness and boost productivity while ensuring it can compete for years to come. Dealing with inflation, however, has become a major barrier to digital transformation efforts, and the economic conditions are putting IT budgets under pressure.

Chief financial officers (CFOs) are moving away from growth plans they put in place after the ravages of COVID-19, and are taking a much more defensive approach, according to Deloitte’s Autumn 2022 European CFO Survey. They’re primarily concerned about rising energy costs, inflation, and labor shortages

The research found that, across Europe, cost reduction was the key strategy for the next year for businesses in 12 of the 15 nations that took part in the research. Digitalization, however, was the second highest-ranking strategy in seven countries, meaning it’s still a strategy many businesses want to pursue.

Digital transformation has significant implied costs, and is seen as expensive to implement. But it offers to possibility of scaling beneficially in the long term, according to the report. The firms that can afford to pursue digital transformation projects may see them as worthy investments, in light of rocky macroeconomics. Inflation is, nonetheless, a concern that needs to be carefully managed while undergoing any new or existing IT projects.

The risks of fast-tracking digital transformation

Lured by the prospect of digital transformation benefits, a firm might be tempted to fast-track the process. This can be a good strategy, but there are plenty of pitfalls for the unwary. 

“Complex digital programmes often rely on the allocation of available internal resources well in advance, which – in the case of fast-tracking – might have to be replaced or enhanced by more expensive external resources,” says Alfred Obereder, director at the independent management and technology consultancy, BearingPoint. 

Another potential issue is that trying to implement a digital transformation project at a faster pace than originally intended might store up problems for later, simply because things move at a faster pace and so checks and balances can be curtailed. Problems might not become apparent till much later or even till it is too late. Cyber security might be weaker than it should be, future scalability might be compromised, and, in general, more expenses might be needed later to fix problems baked in through fast-tracking.

However, with care and attention, fast-tracking can be a smart move. For example, a digital transformation project which allows a firm to better support remote working might reduce costs and improve productivity, with those benefits coming onstream at pace. 

“A digital transformation project that removes the requirement for surplus energy use – like moving away from an on-premise data center – could help reduce the need for electricity, thereby reducing business costs,” Tim Powlson, principal consultant and digital transformation expert at the business change consultancy Entec Si, highlights as another example. 

Is pausing a digital transformation project viable?

An alternative (and more drastic) option that might be considered in light of soaring inflation might be to pause or even completely shelve a digital transformation program. 

While there’s no simple answer to this question, says Obereder, there might be alternative options on the table. “Instead of a full pause or disbanding [projects], companies might want to consider creative options to instead reprioritize their program’s roadmap and focus on elements which are easier to finance and have an increased impact on cost savings.”

Any engaged contractors might not take kindly to a pause, which would mean a loss of revenue for them, even if a temporary one. To be viable as a cost-saving strategy, a pause would likely need to last several months. 

During that time, business priorities might shift, the parameters of the project might flex, and external conditions might develop and lead to new opportunities. Rather than accommodating these through a standard iterative process that’s part of a project in progress, additional costs might be incurred in revisiting earlier work and earlier decisions.

Shelving a digital transformation project might end up being the only option for some businesses, and it might be a difficult decision to make in light of considerations like the sunk-cost fallacy. Approximately 60% of executives say digital transformation is the most critical growth driver, however, meaning canceling a project equates to swerving away from a potential source of future growth, according to PWC.

The cost of cutting corners

Powlson suggests an alternative approach: “It’s worth understanding what the minimum viable product (MVP) would be and highlighting where the most benefit can be made for the lowest cost.”

Cut costs without compromising projects

First, identify the key wins, Then, reassign some tasks to internal teams rather than more expensive consultants. You can also reorder workloads so the element that delivers the greatest benefit is prioritized. Finally, negotiate revised fees with suppliers and contractors.

Indeed, another possible way to save costs on digital transformation projects is to do some trimming. But this is another approach that is fraught with challenges. Cutting corners at speed in order to manage what may well be serious short-term financial problems might end up being a false economy as a firm can finish up with an end product that’s far below the standard and capabilities originally planned. 

Rather than trim all over, Powlson advises hunting down “the smallest change that can be made for the most amount of good” as a way of getting more immediate value from digital transformation. Taking such measures might make it seem as if digital transformation projects are a runaway train, but that’s not really the case. 

Sandra Vogel
Freelance journalist

Sandra Vogel is a freelance journalist with decades of experience in long-form and explainer content, research papers, case studies, white papers, blogs, books, and hardware reviews. She has contributed to ZDNet, national newspapers and many of the best known technology web sites.

At ITPro, Sandra has contributed articles on artificial intelligence (AI), measures that can be taken to cope with inflation, the telecoms industry, risk management, and C-suite strategies. In the past, Sandra also contributed handset reviews for ITPro and has written for the brand for more than 13 years in total.