Solving the UK’s profitability puzzle

Nadeem Malik, UK and Ireland Head of Software AG argues that UK tech must redefine what is mission critical to solve the profitability puzzle

 

Warren Buffet’s famously warned: “Only when the tide goes out do you discover who’s been swimming naked.”

 

With UK growth set to be the slowest in the G7, we face recession and inflation unseen in a generation. The tide is looking precarious.

 

For the UK tech sector, the seemingly abiding mantra of ‘growth at all costs’, which has defined the past decade, is proving increasingly unsustainable. Those that are steadfast in this approach will be left without much cover when the tides recede.

 

In today’s environment, companies must focus on growth with sustainable profits. It is no longer about chasing astronomical user stats or sign ups at any cost, but about setting a path for resilient, long-term profitability.

 

What’s mission critical and what’s nice to have

The surest way to support this strategy is to go back to basics; start with efficiency and stop indiscriminate spending. This requires a stricter definition of what’s mission-critical and what can be postponed or cancelled.

 

Some of those things are easier to identify, for example, fintech Shyft’s CEO admitted he would be skipping the ‘corporate excess’ of international travel to help reach the goal of ‘profitable, strong unit economics’.

 

Many of the ‘givens’ of corporate life have been downgraded, and what is mission critical is now much more tightly controlled. As Maggie Vo, Chief Investment Officer at Fuel Venture Capital wrote recently, “If you really want to succeed, efficiency is the name of the game… investors specifically will be willing to pay a premium for capital efficiency, unit economics, contribution margin, and profitability.”

 

Right now, mission critical is keeping the lights on. It’s delivering an excellent quality of service to customers and employees. It’s not about the bells and whistles or peripheral projects that are possible when cost pressures are relieved.

 

Companies should be spending their precious tech budgets on the infrastructure services that will keep data moving, keep customers engaged and ensure that things are done efficiently. We are already seeing some application software spending slow down as companies realise what’s mission critical for them.

 

However, to ensure innovation in these mission critical areas can continue, we need to create the right conditions and this involves an ecosystem of support, in particular the right skills and talent to bring it to life.

 

Talent and technology towards profitability

With inflation driving employee demands for commensurate wage increases, the temptation for many companies will be to look at the high costs on the balance sheet, such as payroll, and start cutting. We’ve seen this in the layoffs at giants such as Netflix, Snap and Apple, and hiring freezes have been almost universally implemented. 

 

However, talent is still required to deliver improved services or new products to customers as well as address the increased levels of technical debt most face in their post-pandemic-investment phase.

 

Technical debt is a necessary part of rapid digital transformation, but it cannot be left unmanaged or it will create a web of complex fixes that can stand in the way of efficiency. Keeping the right talent in place – and hiring selectively for essential skills – will help manage this technical debt and set up companies for future successes.

 

Enabling talent to thrive

Where crucial tech skills are in short supply, talent must be maximised. That does not, however, simply mean squeezing valued employees for more. Covid, lockdown and the post-pandemic rebuild have left many workers feeling burned out, stressed and uncertain about their futures. Overwork is an issue that employers cannot afford to ignore, especially as ‘quiet quitting’ becomes more commonplace.

 

Automation can help ensure people remain engaged, supported and focused. It can help plug gaps to cut out the burden of time-consuming but basic tasks and alleviate workloads – allowing people to focus and use their time more effectively. Where such tools give employees the space, time, and technical support to deliver transformation, then such adoption should be considered innovative in itself.

 

It is also understated just how important the development of technical skills is for businesses. Every organisation needs to be thinking about how they can future-proof themselves against the skills deficit and become more resilient.

 

It drives performance for continued growth and at this time of growing uncertainty, we cannot wait for the government to fix the talent crisis. It is about organisations acting now, using all tools at their disposal to implement skills development strategies, empowered by technology but delivered at a human level.

 

When organisations consider what is mission critical and what is not, they must carefully consider what’s in front of them – where they can make processes more efficient, where they can innovate based on technology at their disposal, and where they can better manage technical debt and drive down costs.

 

This must not come at the expense of talent. Skills must also be top of the priority list, and technology deployed which can help employees focus and thrive.

 

If companies stay focused on these factors, they can achieve the path to profitability and come out of the economic crisis even stronger.

 

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Nadeem Malik is UK and Ireland Head of Software AG

 

Main image courtesy of iStockPhoto.com