It’s hardly revelatory to say that inflation is sky-high in Australia right now. Not only did the Consumer Price Index (CPI) increase 7.3% over the 12 months prior to the September quarter, but some experts predict that rates won’t decline to target ranges until 2024.
Unfortunately, for many companies, rising inflation is contributing to higher staffing and third-party service provider costs. In the face of these increased expenses, it’s understandable that many would consider scaling back on initiatives such as digital transformation (DX).
But that would be a mistake. According to Patrick Forth and Stefan Mohr, both Managing Directors & Senior Partners at BCG’s Sydney office, “It is not an overstatement to say that companies that do not embrace digital are effectively signing their death warrant”.
Setting aside the dire nature of their statement, driving DX in an inflationary environment is still possible. It just requires some creative thinking and a willingness to prioritise opportunities for both the short and long term.
Gartner defines ‘digital deflation’ as “investing in technology to permanently reduce the cost of doing business”. Essentially, companies can combat the negative effects of inflation by implementing tech solutions that both produce immediate cost savings and improve profitability in the long run.
According to Gartner’s model, this can occurs through four mechanisms:
• Utilising technology to lower labour costs
• Driving down production and delivery costs through technology
• Increasing productivity with technology
• Leveraging technology to drive better data capture and analysis, fuelling better decision-making
In this way, “inflation can be a catalyst for organizations to drive key digital and cost reduction initiatives across the whole business”, says Alexander Bant, Practice Vice President, Finance at Gartner.
But implementing new technology isn’t always cheap, and inflation puts pressure on IT teams to do more with less. In the face of tightened budgets, how do you determine what specific initiatives you should pursue within this framework, and which ones can be delayed? While every organisation’s circumstances are different, the following are four digital projects to consider prioritising in the inflation era.
If you can’t address each of Gartner’s four digital deflation pathways at once, we strongly recommend focusing on the following initiatives:
According to Steven Perkins, a national leader for technology and telecommunications industries at Grant Thornton, “I think we'll see more upgrades and investments to unlock additional value from existing infrastructure. The cloud has allowed businesses to essentially rent digital capabilities and this asset-light approach makes the most sense at the moment”.
Migrating to the cloud enables companies to move away from cumbersome legacy systems that may hinder innovation and be costly to maintain, while also providing a level of flexibility that’s especially beneficial amidst the uncertainty of inflation.
Further, implementing cloud systems may make it possible for companies to reduce their staffing and personnel costs by gaining access to a wider talent pool—compared to the relatively smaller number of professionals who understand how to manage the legacy system.
Data analysis advantages factor in here as well. The agility of cloud systems and their numerous integrations makes capturing and interpreting data easier, which may drive the decision-making benefits referenced in Gartner’s digital deflation model.
While some initiatives can be delayed or disrupted until inflation cools down, security isn’t one of them. Recent security breaches at Optus, Medibank, and other notable organisations demonstrate both the vulnerability of modern companies to cyber-attacks and the potential costs associated with remediating them.
Cyber insurance may help mitigate these losses, but as many companies are discovering, policies are often expensive—and they may prove impossible to get if you don’t have specific security controls in place.
So even if you must cut costs in some areas, security initiatives shouldn’t be deprioritised. Whether you plan to move to the cloud as an inflation mitigation measure or remain on-prem, having a robust security program that involves Essential Eight compliance, ongoing monitoring, and employee training is critical.
Talk to us today to solve digital transformation challenges.Contact Us
In an inflationary environment, cost pressures on C-suite leadership tend to put every digital transformation initiative on the chopping block. However, it’s worth continuing to prioritise customer experience and innovation, rather than delaying them to focus on operational efficiency alone.
One recent McKinsey Global Survey on digital strategy and investments looked at what ‘top-performing companies’ are doing, compared to their competitors. Interestingly, they found that one factor that emerged as critical to capturing value from digital transformation initiatives today was “the use of digital tech to achieve strategic differentiation on customer engagement and innovation rather than cost efficiencies”.
Further, the Survey found that “bolder digital strategies are more likely to be successful than more incremental ones”. For best results, companies should look at ways to use technology, both to establish a competitive advantage through customer experience and innovation and to drive down production and delivery costs.
Finally, keep in mind that the automation of key workloads has the potential to reduce costs, increase productivity, and improve customer experience.
According to Kristin Moyer, Distinguished VP Analyst at Gartner, “Quite often, higher productivity and better bandwidth for an existing employee would result in performing high-value tasks that were not getting done, such as nurturing high-value client relationships”.
That said, many organisations find it difficult to determine which workloads to offload and which to retain in-house—and going through these necessary steps can feel like less of a priority amidst high inflation. Again, a partner like CBS that has extensive experience with business process automation (BPA) can be especially helpful in evaluating your unique circumstances. One quick and easy way to get started is through an automation accelerator workshop.
Although inflation may feel omnipresent now, Australia’s economic outlook over the next few years is generally positive. As a result, it is likely that companies that invest in digital transformation now—using technology to reduce long-term costs without compromising customer experience—will be in the best possible position to benefit as inflation recedes.
For help establishing a digital transformation plan that both combats inflation and sets your company up for long-term success, reach out to the team at CBS today.