Insights & White Papers

Inflation and Technology Investments: Fight or Flight?

By Krzysztof Rzymski, Kate McAleese

Business & Technology Strategy

With inflation at 40-year highs, many companies are looking at ways to cut costs to remain competitive. CFOs have little control over inflation but must be proactive in navigating their organization through tough times.

For many companies, their initial response to inflation is a flight to safety. Safety often entails cutting back or pausing investments, and information technology is traditionally one of the first areas evaluated. Flight is easy; it is an automatic physiological reaction humans are born with. Decisions to curtail investment in technology solutions that often target vendors are a clean-conscious and quick approach many companies take to react quickly. 

A proven and long-term approach to tackle inflation is to fight it with information technology investments. Fighting inflation with information technology is not a quick-fix approach, but it does provide long-term value to a company’s commitment to the approach.  

Fight with Automation 

One of the first tactics in the defensive playbook against inflation is automation. Automation implemented well can significantly reduce costs and improve productivity by driving new revenue streams and job creation. During periods of inflation, Gartner explains how an earnings-driven approach toward automation stabilizes an organization’s business environment in a downturn [1] 

Earnings-Driven Automation

Earnings-driven automation primarily focuses on improving financial performance. It does so by reducing the volume of talent required. Automating processes that require limited technical experience can save valuable hours of manual labor.   

Automation allows for the redeployment of resources to other higher-value tasks. It also opens opportunities to upskill existing employees and expand their capabilities to carry out several tasks.  

Automation helps organizations become more efficient and mitigates increasing labor costs and talent shortages. Furthermore, automation can help eliminate operational risk by increasing accuracy throughout the work process.  

Automation can save organizations time and the unnecessary expenditure spent on rectifying expensive mistakes.

Artificial Intelligence and Machine Learning   

Introducing artificial intelligence (AI) and machine learning (ML) platforms allows organizations to leverage their capabilities in demand planning and inventory management. With growing geographical uncertainty and an increasingly volatile economy, companies need to become more efficient to continue delivering to their customers.   

These innovative technologies provide better predictive insights into demand, enabling companies to stay ahead of supply chain complexities and help weather the inflationary storm.  

Fight by Scaling Business Processes 

Another way technology can be used to fight against inflation is by scaling business processes. When an organization can scale its operations, it essentially means that it can manage an increasing volume of work efficiently and cost-effectively.  

According to Forbes, companies “scale” their business when revenue increases while operating costs remain low. If an organization increases its revenue along with an increase in operating expenditure, then that business is not scaling [2].  

Cloud Computing Solutions 

Technology has come a long way, particularly in cloud computing. Amazon Web Services, Microsoft Azure, and Google Cloud are certainly leading this field, providing companies with simple ways to expand their business. When implemented correctly, investment in cloud computing can help scale business processes, drive revenue, and, most importantly, reduce operating costs. 

Traditionally, data is stored on physical computers or documents in filing cabinets requiring an on-premises location. Today, businesses have the opportunity to rent cloud storage and manage their information online by leveraging Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS) solutions. Information becomes easily accessible and scalable. It allows users to access data remotely and be more flexible.   

Cloud solutions offer unlimited storage and computing power and mitigate real estate and related expenses (rent, insurance, underutilized resources, etc.) by shifting data and processing infrastructure to scalable shared platforms. 

Decreasing Costs of Scalable Technology Platforms 

What is interesting to note about these platforms, is that the cost for these services is marginally affected by inflation. Many economists have demonstrated that digital technologies tend to counter inflation.  

Forbes reported, While the Bureau of Labor Statistics released the May 2022 Consumer Price Index showing overall inflation shot up even more than the month before, at 8.6 percent, Bloomberg reported on the Adobe Digital Price Index which showed inflation online actually was at 2%, with an 0.7% drop month-over-month, for the third month in a row of price drops online, with the majority of product categories online showing price decreases [3].   

With that said, in the second quarter of 2021, AWS announced that it had reduced its prices 107 times since its launch in 2006. This anecdote emphasizes that scalable technology platforms, over time, decrease their costs as more users adopt common platforms in contrast to other resources (people, fixed assets, real estate, etc.). 

What to Expect with Automation Investments  

  1. Increased Productivity

By being proactive in a downturn through well-planned, transformative IT investments, a deflationary effect can be observed on operating costs, enabling companies to thrive in tough times.  

Companies can unlock an increased level of productivity organization-wide. Through automation, operational inefficiency can be significantly reduced, redundancies eliminated, and accuracy improved. Both human and capital resources can be redeployed to other higher value-driving projects instead of being wasted on laborious, time-consuming manual tasks.  

AI and ML technologies can provide a more accurate insight into supply chains allowing companies to better plan for constraints that would otherwise affect access to raw materials and lead times. Cloud computing increases productivity by enabling employees to access work systems from virtually anywhere. In fact, Bloomberg reported that productivity increased by 13% for people working from home [4].  

Collectively these innovative technology investments enhance productivity, increase revenue, and permanently reduce operational costs. These savings can then be passed on to consumers or added to a company’s bottom line. 

  1. Improved Decision Making

One of the most significant benefits that an investment in cloud computing brings is improved access to data analytics tools. These tools optimize the ability to access, analyze and visualize valuable datasets. Organizations can exploit these analytical tools to produce better quality and more comprehensive data that allows CIOs and other executives to make effective and timely data-driven decisions.  

In many instances, decision makers lacked visibility into the relevant, material content that is essential for the decision-making process. Traditionally, administrative teams would have to go through a series of workloads/databases to ensure the correct information was readily available for the decision leaders. The cloud, however, eliminates that process by increasing access and visibility to resources.  

 Cloud-based software enables increased business collaboration. Platforms like Microsoft Teams, Zoom and Slack make it easy for employees to reach out and work together. With collaboration, teams can combine their extensive knowledge and expertise to enhance the quality of their decisions. Collaboration can improve traditional top-down leadership decision-making, enabling novel approaches and ideas to come to the fore.  

Automation also optimizes the decision-making process by improving the accuracy of data. When processes become streamlined, internal decisions can be based upon the same foundational assumptions, thanks to the consistency and quality data automation brings.  

A recent survey from Gartner revealed that 80% of executives believe that automation can be applied to any business decision [5]. That same survey also highlighted that a third of organizations are applying AI across several business units, creating a stronger competitive differentiator by supporting decisions across business processes [5].  

Be Proactive 

Rising inflation can bring a lot of unease to companies. While it is difficult to predict the impact of inflation accurately, CIOs must be proactive to ensure that their organization is profitable despite growing economic uncertainty.  

In the past, IT budgets would be the first cut to make necessary savings. However, fighting inflation through transformative technology investment can curtail inflationary pressures and offset the damage it could bring.  

Companies can leverage technology capabilities such as automation and cloud computing to reduce costs, boost efficiency and productivity, to drive new revenue streams, enabling businesses to grow in the worst economic times.  

About Liberty Advisor Group

Liberty Advisor Group is a goal-oriented, client-focused, and results-driven consulting firm. We are a lean, handpicked team of strategists, technologists, and entrepreneurs – battle-tested experts with a steadfast, start-up attitude. We collaborate, integrate, and ideate in real-time with our clients to deliver situation-specific solutions that work. Liberty Advisor Group has the experience to realize our clients’ highest ambitions. Learn more at libertyadvisorgroup.com and on LinkedIn and Twitter.

References 

 [1] https://www.gartner.com/en/articles/automation-key-to-inflation-fight-could-also-raise-esg-risks 

 [2] https://fortune.com/2011/06/01/how-to-know-if-your-business-will-scale/ 

 [3] https://www.forbes.com/sites/daviddoty/2022/06/09/how-digital-technology-fights-inflation-a-tool-consumers-need-now/?sh=5f679c00798d 

 [4] https://www.bloomberg.com/opinion/articles/2022-06-02/are-workers-more-productive-at-home 

 [5] https://www.gartner.com/en/newsroom/press-releases/2022-08-22-gartner-survey-reveals-80-percent-of-executives-think-automation-can-be-applied-to-any-business-decision 

Krzysztof Rzymski By Krzysztof Rzymski
By Kate McAleese