Blog

As employees returned to work, the reversal of some pandemic trends, combined with inflation and growing fears that the global economy was heading into a recession, weighed on quarterly profits for a host of companies. businesses and led many to prepare for darker days. Facebook’s parent company, Meta Platforms Inc., is cutting more than 11,000 jobs after losing a quarter of its value in a single day in October following a weak earnings report. Alphabet’s consumer-focused advertising engine Inc.

Google is slowing down. Amazon.com Inc., meanwhile, is cutting up to 10,000 jobs. Ride-sharing company Lyft Inc.

and payments processor Stripe Inc. are also cutting jobs. FTX cryptocurrency exchange has collapsed into bankruptcy.

The market for cloud computing, enterprise software, artificial intelligence and other so-called enterprise technologies was a relative bright spot. Demand for cloud computing, for example, has moderated but continues to grow at a healthy 30% rate.

According to research firm Gartner, forecasts of a 5% increase in information technology spending to $4.6 trillion in the coming year should hold up unless the wheels don’t really detach from the economy. Inc.

“The [tech earnings] the results we’ve seen are in line with expectations,” said Gartner analyst John-David Lovelock, who expects infrastructure as a service, a cloud-related service, to grow by around 32% this year. Gartner expects growth to slow to around 30% next year, with a five-year compound annual growth rate of around 27%.

Yet the demand for enterprise technology is economically sensitive and already changing. “In times of economic uncertainty, companies are looking for ways in which technology can drive growth and create more economic value faster,” said Juan Perez, chief information officer at Salesforce. Inc.

While the business case for adopting cloud computing and automation is fundamentally sound, it’s not as strong for other areas of technology. Metaverse, non-fungible tokens, certain aspects of cryptocurrency or technologies that have no immediate monetary value will fall out of favor, said Sunil Kanchi, chief information officer and chief investment officer of UST, a company based in Aliso Viejo, California, which supports its clients in their digital transformation.

While companies still believe in the importance of investing in such technologies, a downturn in the global economy could affect their budgets, according to Kanchi. He expects customers to continue to invest in areas such as automation and low-code or no-code software platforms that reduce the need for human programmers.

“The downturn has sort of started, but it hasn’t bottomed out and will get worse very quickly, probably in the middle of next year,” said Wesley Chan, co-founder of startup investor FPV. Ventures and former CTO at Google. He expects demand to decline for fringe or luxury areas such as crypto, grocery and food delivery services, “neobanks” and high-end travel and beauty.

The outlook for drug discovery and life sciences, cybersecurity, and companies that help customers fix costly inefficiencies or unlock inventory the way Uber Technologies Inc. or Airbnb Inc. are are also. promising, Chan said. He predicts that “the new Google or Uber of 2023 and 2024 will emerge from this downturn.”

CIOs and other technology leaders will need to draw on different skill sets to navigate their way through a radically different business environment. Here are some suggestions.

Pro tips

Priority to cybersecurity. CIOs say they determine which projects would be most important to defend in the event of budget cuts and monitor the health of suppliers who may be vulnerable in the event of a prolonged economic downturn. An economic downturn may strain IT budgets at some point, but cybersecurity is not the place to look for cost savings. “I never go to this hunting ground to save money. If I get a budget challenge, it’s not from cyber,” Kellogg said. Co.

Global CIO Lesley Salmon.

Focus on efficiency. When budgets come under scrutiny, companies tend to focus on short-term solutions that can increase efficiency and productivity, said Salesforce’s Perez. These solutions can run the gamut, from simple planning to using automation and artificial intelligence to minimize supply chain bottlenecks that can hurt profits.

Rethink the recruitment strategy. Companies should take this opportunity to reconsider the pace of hiring and employ freelancers where it makes sense. Startup Piñata has tightened its cost controls, said co-founder and CEO Lily Liu. The company, which runs a rewards and credit-building program for tenants, has about 30 employees and plans to hire up to 15 more this year. Due to the economic outlook, hiring new workers may take longer than expected, Liu said. Additionally, CIOs say they are exploring the possibility of hiring valuable workers who have lost their jobs at other companies or renewing tech contracts on more favorable terms.

Look beyond IT. Work with business units and departments outside of IT to maximize operational efficiency and reduce costs. According to Gartner’s Lovelock, CIOs need to think beyond their own departments and help the entire company use their resources and expertise to reduce costs and increase efficiency.

Focus on long-term competitiveness. If IT budgets are under pressure during a downturn, do your part to control costs and deploy capital realistically and responsibly based on the situation. But, it is always possible to argue with business leaders that recessions don’t last forever. The company still needs to invest in strategically important areas that drive growth and ensure the company’s success when the economy begins to recover.

Write to Steven Rosenbush at steven.rosenbush@wsj.com