Don’t let ‘shrinkflation’ affect your software development


You may not have noticed it, but the products you buy at the grocery store are getting smaller and smaller. It’s true: they are shrinking. In the wake of the COVID-19 pandemic, which has caused raw material prices to skyrocket, many companies are trying to find ways to cut costs.

So if that box of Cookie Crisp (which is part of a healthy breakfast, they say) seems a little light to you, you wouldn’t imagine things; General Mills has reduced its family-size cans from 19.3 ounces to 18.1 ounces.

Economist Pippa Malmgren coined the term “narrowing”To describe cases where companies reduce the size of products while maintaining prices. However, the prices do not stay the same. In May 2021, global food prices were at their highest since 2011.

While the Federal Reserve insists the current period of high inflation is temporary, the ripples are being felt across all sectors of the economy, including software development.

If you believe that “reducing” the amount of effort you put into projects is the best way to keep prices low, you will end up damaging the integrity of your business and failing to meet customer expectations. This is the wrong way to deal with inflation in the software development industry.

The state of professional services

For some C-suite makers, there are few options but increase the fees for professional services. Businesses are grappling with pressures to reduce the costs of professional services, increased competition and commoditization, and the rising cost of talent. Some of these pressures have intensified for years, while others are a direct result of the recent economic downturn.

Fortunately for those of us in the software development space, there have been fewer obstacles during the pandemic due to the demand for digital innovation. The rise of remote working has made software essential to the survival of businesses.

According to an IBM survey, the pandemic has accelerated digital transformation in 59% of organizations. Additionally, the Worldwide Developer Population and Demographic Report states that the number of developers increased by 2.5% in 2020 (although slightly lower than the projected growth of 4%).

The amount of money invested in digital transformation could reach more than $ 2 trillion by 2022. According to Twilio, 79% of companies say COVID-19 has increased their budget for the effort. Maybe that will get some of the laggards out of the proverbial pot.

Box: The ridiculousness of digital transformation has not changed. It is not a process with a definite end. Business owners will never wake up to find this out – poof! – their businesses are changing. It makes a lot more sense to think of it as an ongoing process. (I’ll be leaving my soapbox now.)

Organizations still have a lot of work to do, which bodes well for your business despite the competition from the software industry. Your best digital services are the key to meeting executives’ digital innovation goals.

Cost, which has always been the main factor influencing business decisions about technology investments, should theoretically become a smaller barrier.

However, something about this change seems different. I have been in software development for 15 years. My advice? Make sure you can compete in the modern market.

How to best compete in this market

Researcher Aaron O’Neill estimates that the global inflation rate for 2021 is 3.5%, which is significantly higher than the 2.7% in 2016. In the United States, professional services have seen a rate of average annual inflation of 4.86% between 1961 and 2021.

Whereas other professional services are experiencing increased demand – reports CNBC that home renovations will cost more and take longer – it’s safe to assume the rate of inflation will rise in the software development space as more companies invest in digital innovation.

While shrinkage can work in B2C industries like food and beverage, it’s not a tactic you should use to fight inflation.

Customers need software products that thoroughly address their weak points and enhance existing workflows. If you produce something that is inefficient, you will see fewer loyal customers and likely experience a decrease in your income. Nobody wants that.

Assuming that this price spike is inevitable, how should you reduce the amount you charge for professional services in the future? Here are my three tips:

1. Adopt new technologies that will attract the best talent

Top talent can be 400% more productive, according to a study in personnel psychology. And if your workers are more productive, you’ll see increased profits, according to Gallup.

But how do you attract the top performers? By focusing on emerging technologies. These technologies can make existing processes more efficient, but they can also attract talent.

Software developers are looking for companies that are the “next big thing”. Artificial intelligence, blockchain, and more will inevitably shape the world in countless ways. The best talents want to drive this change.

Increasing investment and commitment to AI is now a necessity. What seems magical to your competition five years from now is actually the result of good planning today. And AI is not a niche set of technologies – it is most effectively deployed horizontally across an organization.

According to the Boston Consulting Group, digital laggards tend to see AI as a stand-alone solution, which limits its effectiveness in their organizations.

2. Invest in your current employees to keep them around

Workplace culture can be difficult to define or quantify, but numerous studies show that cohesive teams and inclusive office environments are associated with higher levels of employee engagement and productivity. And as I mentioned before, productivity improves profitability.

This doesn’t mean you should underpay or overwork your employees. This error can lead to poor performance and revenue, which is counterproductive to your goal.

Rather, you need to make sure that your business values ​​workers’ contributions, rewards them, and continually presents them with new opportunities for personal and professional growth. Nothing beats working for a company that truly supports its employees.

3. Get to work from the start

According to George Cressman, President of World Class Pricing, “Professional service delivery requires a great skill in diagnosing customer needs and understanding the relationship between the very diverse components of a customer’s business. It requires skills to tailor a solution to precisely meet a customer’s needs and to communicate that effectively.

In short, your clients will be much more excited to work with you if you do as much discovery work for them as possible. The corresponding savings on software development costs can mitigate the impact of the current inflationary trend.

When you can give your new partner well-defined personalities, highly relevant user journeys, precise requirements, and in-depth market research, everything goes faster. This big initial work will not eliminate the need to recalibrate once projects are underway, but it can reduce the number of steps from start to finish.

Even if it seems counterproductive, software development consulting prices can lower the overall cost of the project. Plus, with a detailed plan in hand before development begins, customers can rest assured that you are building the right thing in the right way.

To be frank, software development is expensive. It was expensive two years ago, and it will be expensive in two years.

Resisting the urge to raise your prices will help you set yourself apart from your competition. If your work is smart, comprehensive, and profitable, your business will reap the rewards of what could be a prohibitive trend for potential clients.


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