How Will Higher Interest Rates Affect Corporate IT Spending
September 4, 2018
- Posted by: Scalable Team
Along with the certainties in life like death and taxes, companies will always be borrowing money. Over the past 9 years, the Fed has set interest rates at historic lows. Companies took advantage of these low interest rates to expand their business and make significant investments. Even hugely profitable companies like Apple borrowed money because it was so cheap to do so. But what happens when it is more expensive to borrow money now than it was 2 years ago? Companies will either have to increase revenue or cut costs (looking to do both in all likelihood).
Jay Powell, the newest Fed Chair, announced last month that he plans on continuing the rise in interest rates to combat inflation as unemployment is very low and the overall economy is at historic highs. And, he just reiterated that position this month in Jackson Hole. These higher interest rates will affect companies of all sizes looking to borrow money or to issue bonds (since the interest rate on the bonds will need to be higher to be attractive to investors, meaning more cost to the issuer).
With these higher interest rates, the reality is that companies will not have the spending power they used to and will need to find ways to cut costs. CEOs will be asking every department to find ways to limit expenses. If you oversee an organization’s IT budget, this may be very hard as IT becomes more critical in every aspect of the organization and new investment is required to stay competitive.
One solution is to investigate a solid ITAM program. According to a recent Info-Tech article, don’t underestimate, “the value a strong ITAM tool can offer … corporate leadership often misses one of the most direct ways to improve their operations and bottom line”. According to Gartner, on average, 30% of software goes unused within an organization. Equally important, reducing costs can contribute to profitability just as much as net new revenue. For example, if a $2B company saves $4M in software spend that has just as much impact on profit as an additional $66M of new revenue. So, a solid ITAM service (like Scalable’s Asset Vision®) can detect unused software and generate significant savings.
If you are interested in learning more about how the Asset Vision service can help properly prepare your organization for the increased interest rates, you can request a demonstration of Asset Vision.