Report: C-Suite Aims to Cut Costs in Tech, IT

The vast majority of people who’ve never ran or helped run a business might assume companies were cutting down to the bone to get finances in order. One media story after another of recognizable firms laying off hundreds to thousands of workers over the past year paint a picture of cost-cutting going off the rails!

The reality is quite different. A significant percentage of CEOs, CFOs and controllers know there’s more fat to trim at their companies that often doesn’t require cutting payroll and letting people go. In fact, a large number of C-level execs say they failed to cut costs as much as they wanted to in 2023. Your peers are likely to make up for lost time in the coming weeks and months. A variety of external factors that are sure to be factored in are:

• factory and manufacturing technology orders, which are near 2021 lows right now
• inflation necessitating a new round of price increases
• harnessing of AI to complete tasks in-house, and
• the Federal Reserve finally lowering interest rates. (Mea culpa: We were among the pundits who predicted — wrongly as it turned out — that the Fed would start trimming rates in March.)

IT Infrastructure Poses Big Challenge

So just how off were CEOs, CFOs and IT execs from achieving their cost-cutting goals for 2023? Try by a whopping 82%.

According to a recently published survey of C-Suite professionals by Deloitte: “82% of companies said they missed their cost-reduction targets, up from 72% a year ago. This is the highest failure rate Deloitte has ever recorded since starting this series in 2008.” Exactly half of the firms that missed their goals also achieved under 50% of their targets to improve their companies’ bottom lines.

The top reasons cited for failing to rein in costs were:

1. challenges with technology infrastructure to meet new business conditions (cited by half of respondents)
2. inability to rapidly adjust cost structure to meet demand, and
3. inability to attract or retain key talent.

“There are several levers companies can pull as part of their business margin improvement strategies, and previously, it was more common to see companies try to use many of them at once,” according to Deloitte. “[Companies] are now focusing primarily on three business margin improvement areas — data and AI, organization structure design, and process reengineering and automation.”

No-cost AI is Sparking ‘Efficiency’ Surge

Wall Street is seeing a surge in companies locking in on cost-cutting this year. An analysis by Morgan Stanley reveals companies are discussing cost-cutting strategies and “operational efficiency” during earning calls all of the time, as reported by Bloomberg.

Perhaps the key reason? Generative AI is capable of handling so many tasks — particularly in tech and finance — and it costs nothing but time and practice to implement. Finance professionals who are willing to embrace AI can benefit from freeing up their time to work on more important projects, a major goal also for CFOs and controllers.

Caveat: The transition to AI is likely to get rocky. For example, a World Economic Forum (WEF) report estimates that 70% of finance tasks will be automated or significantly altered using AI. Unfortunately some firms will tackle the shift by letting go of practitioners instead of focusing on which tasks can be put on autopilot using AI.

The WEF researchers predict AI will be “most useful for bookkeeping, accounting, and auditing,” according to Zero Hedge. The only sector that’s headed for greater AI disruption than finance (hardly a surprise) is IT.

Is IT Paying Too Much — and for Duplicative Products & Services?

Deloitte’s study doesn’t call out by name a common culprit of wasted dollars – IT departments overspending on software services, vendor contracts and related technology expenditures. In many cases, money is going toward duplicative services. And overhauling a bloated technology infrastructure takes time and skill to pull off.

These days IT departments are “juggling more IT vendors than ever,” reports the Wall Street Journal. “The amount of outside software companies are tapping has skyrocketed in the last 10 years … [and CIOs] say they’re leaning on other areas of the business to help them manage it, but that comes with its own challenges.”

The Journal highlighted several companies that’ve doubled their software vendors in the past five years, but are now feeling pressure from above to pare down and find ways to replace some functions with AI and automation. Pharmaceutical and biotech manufacturer Moderna, for example, started reviewing all of its IT-related contracts for duplication of services and managed to slash more than a quarter of its 200-plus tech vendors since 2023.

Stay Focused on Cybersecurity when Considering Tech Cuts

AI can be a big help to companies. It also poses a grave threat. For example: AI deep fakes are getting better and better and companies that fall for a ruse are losing a fortune. As much as $22 million gone in seconds, in some cases.

Ransomware actors are more ruthless than in the old days. The FBI, Interpol and data security exerts are warning businesses that paying a ransom to hackers won’t necessarily protect their data. Hackers are selling stolen company data to other threat actors. Multi-million dollar ransom demands are also the standard du jour.