Is it an oxymoron to say that purchasing during a spending freeze is possible? The truth is that a lot of purchasing gets done during a buying freeze — it’s just that most of us don’t know the right strategies for attempting it.
The goal for any organization isn’t to stop spending, it’s to fundamentally change their cost model. By freezing spending, an organization can reset its expense base, potentially bring its model into better balance, and ensure sustainability for the organization in the long term.
How IT Operates During Spending Freezes
Purchasing freezes often impact IT organizations more significantly than other areas due to the level of spending that IT generally does to enable their workforce. These freezes can be hard on internal IT looking to improve upon existing technologies or take on new projects in the future.
However, when IT leaders look at the problem differently, they can better align their department with the overall goals of the organization. By resetting their cost model, internal IT can build processes that are more efficient in regard to cost and time. The best thing IT leaders can do is work with their finance team to build a better operating model, which often equates to some short-term spending for long-term benefits.
Now, it’s important to note that some companies enact purchasing freezes to ensure long-term survival. Some organizations aren’t positioned to allot any new spending, and their survival is dependent upon cutting short-term cash costs to weather the storm. This guide isn’t well-suited for companies that need to cut all spending, it’s more so for IT organizations looking to restrategize their existing operating model to help their company navigate through troubled waters.
New spending in IT during a purchasing freeze will happen for one of four reasons: to reduce future expenses, to increase the probability of revenue increases, to beat the competition, or to protect the organization. We’ll cover each below.
Dramatically Reduce Future Expenses
Every IT organization is looking for ways to significantly reduce costs. The best way to do so is by evaluating new expenditures that will result in payback in the future. For example, if an admin spends “x” now, they’ll get a “3x” payback within a quarter or two.
Of course, planning must be involved with these savings. Generally, those that work best turn off other cost-inefficient or less flexible solutions, eliminate consulting expenses, reassign headcount elsewhere, or renegotiate contracts.
A very simple example of this can be found in AWS’ program for Reserved Instances. Using it, organizations can pre-buy capacity for a consistent usage amount per month at a significant discount. By making that commitment, AWS® charges companies much less than if they were to pay on the open market for compute power. By planning the server capacity they’ll need, organizations drive cost reductions in the future even though there is a commitment for additional spend immediately.
High Probability of Revenue Increases
Organizations are looking to increase their revenue, even during a downturn. While this can be rewarding, the challenge is that there must be a high probability of revenue increases later on.
During a recession, there’s often significant skepticism on whether proposed spending will actually materialize revenue. Every organization’s circumstances are unique, but CFOs are on the lookout for low-risk, high-revenue generating spend but at the same time wary of unproven, risky ideas.
For example, organizations can be more opportunistic with their spending. IT organizations can accelerate proposed spending if vendors are offering products at better prices. Any ability to purchase during economic hardship is seen as a strength with vendors, who are more likely to work with you when considering making a purchase.
So, perhaps launching a new product might pay off, or security’s stamp of approval on an audit will enable customers to purchase with confidence, but it has to be done in the right way. Your circumstances will vary, but tying a purchase to high probability revenue is a smart way to get through a purchasing freeze.
Beat The Competition
Most organizational leaders know that an economic downturn is temporary. There will come a day when the economy recovers and customers buy at much higher levels than they are during the downturn.
Leaders want to use the recession to come out even stronger, taking more market share when purchasing increases again. Most organizations will be prudent about instituting programs to leapfrog the competition, but almost always there are one or two bets placed to win during the recovery. Your purchase request may fall into this category as a no-brainer for an organization looking to win on the rebound.
Protect The Organization
Just because the economy may be challenging does not mean that organizations can shirk their legal and financial responsibilities. Leaders know that many of IT’s tasks aren’t optional and therefore won’t be impacted by the purchase freeze.
Good examples of this are audits, privacy compliance, and governmental filings. Ideally, organizations look at these tasks differently while under a spending freeze, reengineering them to exist under a different cost structure. IT leaders can support these compliance and regulatory initiatives by purchasing new technology that supports the organization’s approach cost effectively, despite a spending lockdown.
Planning For The Road Ahead Has Impact
IT leaders that position their spending activities to meet the above requirements often have success with continuing to operate at a high velocity while also providing significant value for the entire organization. Those leaders know that partnering closely with finance to align goals and objectives is critical, but also know that building trust by focusing on the right purchases during a difficult time can have a long-lasting impact.Interested in learning more? Check out this blog on purchasing IT tools during a pandemic, or our blog on the value of identity management during a recession. If you have any questions, feel free to contact us.