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How will IT service companies deal with the economic slowdown?

IT services companies, like the rest of the world, got hit hard by the economic slowdown. But how are small and medium-sized companies addressing the obstacles such as an insufficient number of new business opportunities, as well as the necessity of cost cutting and the consequences which would follow? The results of Talent Alpha’s Tech Talent Business Survey 2023 reveal some interesting trends in this sphere. 

Depending on what the company is facing, it may find various ways to deal with this difficult situation. In a previous article about small-to-medium companies in the New Reality, we outlined the main risks and difficulties identified by IT service companies around the world. These included obstacles such as a lack of new business opportunities, unfavorable economic factors, market uncertainty and a shortage of appropriate staff. What are the plans and ways of dealing with these obstacles? 

Talent management techniques

Seeking information about the plight of the IT market, layoffs were the most prominent feature. Nearly 220K professionals from tech companies around the world have been laid off since the beginning of 2023 – some companies had cut up to 25% of their tech staff. However, only 6% of companies who took part in the latest Talent Alpha survey stated that they planned to reduce their teams – this, of course, can change if market conditions deteriorate further. This small percentage demonstrates how valuable tech talent is, especially for smaller businesses – letting go of staff is a hard decision, and may only happen when all other scenarios have failed.  

While some companies are dealing with staff reduction, others need new talent, especially in emerging technologies such as Machine Learning and Artificial Intelligence development. The tech talent gap has taken on a new meaning and in general, according to Gartner, will be a major factor until 2026. There is a shortage of senior and mid IT professionals with expertise, and the boom in tools such as ChatGPT is exacerbating it further and making it more difficult for people to get a job in the sector as the number of entry-level positions decreases – it takes AI-specialized talent and deep experience to keep up with this AI trend and to stay competitive.  

The hope may be in the shape of gig workers. Among the companies that participated in the Tech Talent Business Survey, 17% indicated that they had a plan to use part-time employees within the year. It’s not yet a widespread approach but it is becoming more popular with some believing it is worth the risk. Indeed, hiring specialists for specific tasks gives a company access to a pool of specialized Talent, increases flexibility within the organization and helps to respond to the needs of the business in a cost-effective way while delivering a high-quality product to clients. 

Rethinking the budget

For many, losing their staff is the worst-case scenario. Therefore, they are turning to other solutions first. According to the results presented in the Talent Alpha report, companies were trying to refocus their budgets to fuel strategic points, while forgoing unnecessary expenses. One way to reduce expenses and stay afloat is to trim operating costs – as many as 50% stated a desire to do so during the current year. Investing in tough times, especially in terms of the economy, can seem like a rather risky way to handle a economic slowdown. The key, however, is to rethink the budget and reallocate spending to the most critical areas.  

Another way of dealing with constantly rising expenses is for companies to pass on price increases to their customers. 29% of companies which took part in the survey were thinking about increasing their margins. These plans might have changed due to a worsening in economic conditions. So dividing the cost between buyers and sellers may be looked upon as the most realistic scenario.  

Investing in relations

By balancing the budget, future vital investments are possible. The sales department seems to be one of these, as implementing more sales efforts looks to be a trend for 2023. 62% of companies, who took part in the survey were planning on strengthening their sales strategy. Investing in building strong relationships and creating a supportive community in a harsh environment can benefit all parties. And it’s not just about new partners – deepening existing partnerships can be a decisive factor in maintaining market position. The support of allies has never been more important than at a time when projects are being downgraded or closed. As many as 55% of companies have been affected by this problem. An interesting solution is to utilize Generative AI tools to take over customer service and some proportion of the sales drive. With tech giants changing their attitude towards using AI-supported tools rather than relying on a traditional workforce, we may shortly see this trend starting to affect smaller market players.  

For more insight on how SMEs around the world are facing current trading headwinds, see the latest Tech Talent Business Survey Report 2023



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