Is digital transformation still relevant during a recession?

Tech leaders have invested in transformational programs for a decade, coinciding with an economic boom. Should tech leaders batten down the spending hatches, or are transformative initiatives more important than ever?

Digital transformation during a recession.
Image: Adobe Stock

There has been increasing debate about whether the U.S. economy has entered a recessionary phase, with the traditional definition of two consecutive quarters of GDP decline having arrived. However, a strange cauldron of historically low unemployment and historically high inflation makes the situation less clear. Regardless of which economic definition is applied, a majority of corporate chiefs believe we’re in a recession or headed for one, which indicates many of our bosses believe in a shrinking economy that will ultimately impact tech leaders’ budgets and focus.

These economic clouds are impacting tech leaders already, and many are considering where to cut spending. Digital transformation initiatives are often large line items in tech leaders’ budgets and should be scrutinized as economic circumstances change.

Defining digital transformation

According to Morgan Stanley, a survey of CIOs indicated that nearly 10% plan to increase spending on “Digital Transformation” in 2022, a slight decline since 2021. While this might mean digital transformation is not only relevant but a top three priority even in an economic downturn, it’s subject to the classic problem of the term “digital transformation”—everyone has a different definition.

While it’s not necessary to debate how to define digital transformation, tech leaders should dig deeper into their transformation initiatives to prepare for tightening budgets. Generally, initiatives billed as digital transformation falls into one of the following three categories:

  1. Cost reduction through new technologies (e.g., cloud migrations or automation)
  2. Enhancements of current products or services through digital technologies (e.g., an app that pairs with a physical product)
  3. Creating operational flexibility (e.g., remote/hybrid working tools)

If you’re currently spending heavily in the third category, recessionary pressures may reduce the need for new services. Similarly, if all your transformational initiatives focus on reducing costs through new technologies, you may be missing growth opportunities that can exploit competitors’ weaknesses brought on by a changing economy.

Digital transformation initiatives should be the strategic element of a tech leader’s portfolio, and the mix between cost reduction and creation of new revenue should reflect the broader corporate strategy. If nothing else, revising your portfolio of Digital Transformation initiatives should be a topic of discussion next time you meet with your colleagues outside IT.

SEE: Research: Digital transformation initiatives focus on collaboration (TechRepublic Premium)

Recessionary strategy

It’s great news for the broader economy that we haven’t seen a widespread recession for over a decade. However, that makes these economic headwinds a new test for everyone from executives to employees in the early years of their career.

In most organizations, tech leaders should have newfound credibility born of helping their organization navigate the challenges of migrating much of their workforce to a remote environment, and in some cases, bringing those workers back into offices. You’ve likely earned newfound respect as a capable operational leader, as well as someone that can activate and enable the broader corporate strategy.

Use what you learned and the relationships built during the pandemic to bring tech to bear in preparing for, and responding to changing economic conditions. Your portfolio of Digital Transformation initiatives is one of the key tools in your arsenal, and should reflect your interpretation of how to best implement the broader corporate strategy for responding to these times.

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