In turbulent times, what happens to digital transformation?

By Zahi Yaari, VP of EMEA at SnapLogic

As the UK enters what the Bank of England predicts will be the country’s longest recession since records began, companies must use every option to save money, improve efficiency, and increase growth.

Digital transformation – a broad term that includes IT modernisation, such as moving from IT systems on premises to cloud computing and invention of new digital business models – is a lever that can improve all aspects of a company’s performance.

Global spending on digital transformation has been estimated at $1.8 trillion in 2022, an increase of 18% from 2021, according to IDC.

The financial services industry is at the forefront of digital transformation and is the third-biggest spender on technology.

In May, Gartner predicted that banks and investment firms will spend $623 billion on technology products and services in 2022 worldwide, up 6% from the previous year. Tech trends in the industry include “generative” artificial intelligence (AI), “autonomic” systems (self-managed physical or software systems that learn from their environments and dynamically modify their own algorithms in real-time) systems and “privacy-enhancing” computation.

Recessionary chill

Among the big spenders is US bank, JP Morgan Chase, which in January said that it planned to spend $12 billion per year (https://www.jpmorganchase.com/news-stories/tech-investment-could-disrupt-banking) on technology, including artificial intelligence, machine learning and blockchain, to improve customer service and compete with “top-tier tech giants for consumer attention and employee talent”.

Of course, since the spring, the global economic outlook has worsened due to a combination of the cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the ongoing effects of the pandemic. Global growth is forecast to slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023,according to the International Monetary Fund forecast in October.

Will company boards respond to gloomy economic conditions by cutting IT budgets, including digital transformation projects?

IT budget squeeze

Our own recent research found that IT decision makers in both the UK and US are under growing pressure to cut their IT budgets, freeze or reduce their headcount and delay or cancel critical work due to limited resources.

Around nine in ten (87%) of IT decision makers said that their workload has increased in the past six months, against a backdrop of reduced headcount and shrinking IT budgets, the research found.

In response to the economic downturn, six in ten (59%) of those questioned said they either planned to, or already had cut their IT budget.

44% of IT decision makers said that they planned to freeze or reduce, or have already reduced their IT headcount because of the economy.

Digital dividend

Our research indicates that digital transformation is needed more than ever to tackle wasted time managing legacy systems, human error and routine maintenance.

Cutting IT budgets − especially on digital transformation projects that can move the needle on company innovation and growth − would be a mistake.

Companies will overlook inefficiencies within their own business during times of economic expansion. In a recession, companies are less likely to tolerate these same inefficiencies. The focus switches to understanding how to improve staff productivity, often working within the confines of less budget and a lower headcount.

An increasing number of our customers now want to make targeted investments with a rapid return on investment – typically within 60 to 90 days.

It’s not always about buying new products. It’s about using existing IT more effectively to get better value.

When it comes to digital transformation, financial institutions have the second-highest success rate after the technology, media, and telecommunications industry, according to a report published by Boston Consulting Group.

According to BCG – citing its “case experience” − typical benefits of digital transformation for banks include cost reductions of between 15% to 20% (through decreases in the current cost base or avoidance of future cost increases), improvements of 20% to 40% in “efficiency and error rate reduction” and a two- to fourfold acceleration in the delivery of new products and services.

Those figures tally with our experience of helping financial services companies in digital transformation projects.

These projects include helping a retail bank increase productivity and cut costs by connecting a lending platform to cloud-based and automating tasks. We have helped other companies report financial data in real time and reduce errors in expenses and invoices.

In any economic downturn there will always be pressure to make broad cuts to company spending, including IT.

The cost, duration and complexity of digital transformation projects make them a tempting target.

However, now is not the time for banks and other financial services companies to pause or shelve parts of their digital transformation.

Instead, they should double down to cut costs, and increase innovation and efficiency.

Enterprises have more than enough tools, apps, services and platforms designed to improve productivity.

Sometimes, the extent of choice can become a problem, because a jumble of in-house and off-the-shelf technology, on-premises and in the cloud, can be hard to manage.

This is where digital transformation can help. Integrating different tools and apps can increase their value across a whole business, removing the issues associated with duplicated data, duplicated tasks and people working in silos.

Digital integration isn’t an easy solution, but its long-term benefits are too important to sacrifice in response to short-term economic conditions.