When was the last time you saw someone on a unicycle trying to juggle a few bottles? Have you ever tried it? Sure, looks impossible, right? This is a familiar sight for technology leaders because that is the nature of their everyday existence. Deploying new capabilities? Managing cyber threats? Project running over budget? Just lost one of your highest performers to another company? Just another day that ends in “Y.”
Now, thanks to the possibility of US tariffs on outsourced IT services, IT leaders have a whole new concern. And it’s a big one. Before you proceed, please check out my colleague Linda Ivy-Rosser’s blog on the HIRE Act which has been introduced in the US Senate. If you have limited time, she is much smarter than me anyway, so I’d start there.
IT service providers are a critical part of most CIO teams, used for many purposes: production support, staff augmentation for projects, a strategic implementation partner for major software implementations, business analysis, etc. The list goes on to the tune of multiple million dollars. What are US IT leaders supposed to do now in case tariffs happen either by an act of Congress or an Executive Order?
Use Scenario Planning To Minimize Your Impact
While you cannot 100% be prepared for all possible outcomes, it is helpful to be ready for a range of uncertainty. Forrester frames this approach through three different scenarios: Baseline, Pessimistic, Optimistic. In all scenarios, preservation of your most strategic investments is paramount and should be secured quickly. Let’s examine each in this context:
Baseline. Tariffs are introduced at a baseline amount of 10%, consistent with the introduction of baseline tariffs on products implemented earlier this year. In this scenario, cost increases are modest across the board but likely still require some adjustments. Partner closely with your procurement team to evaluate where your highest impacts are and the net effect on your overall budget.
Pessimistic. Tariffs are steep and wide, impacting costs at a substantial level that will cripple most current year financials. Additionally, future year planning will mean a meaningful reduction in the amount of money available for strategic investments. In this worst-case scenario, keeping the lights on will dominate the budget and your AI, tech debt remediation, and new feature development will slow dramatically. Leaders will need to quickly evaluate exit strategies from service providers and not only the financial impact of doing so, but the impact on workload for employees who have to pick up new work.
Optimistic. After an initial tariff implementation, negotiations with the US administration proceed quickly toward another outcome that causes an extended pause in the tariffs, similar to what happened with Mexico and Canada earlier this year. In this scenario, it is not guaranteed that the tariffs will stay paused. However, IT leaders have more time to adequately prepare for the impact and make the necessary staffing or budget adjustments to mitigate impact.
Engage Your Stakeholders Now For Maximum Alignment
Regardless of which scenario plays out, your first immediate step needs to be an agreement with your stakeholders on how the company will collectively respond. IT leaders cannot manage these impacts alone nor should they try. Here are a set of concrete actions to gain alignment on before the tariffs hit:
Agree on your most important investments and protect them. If you are this close to deploying a game-changing agentic solution, make sure this continues.
Ruthlessly prioritize everything else. Utilize a value-based approach to prioritizing the rest of your investments list, draw a “cut” line for each scenario listed above, and gain agreement with your stakeholders on the execution plan so you are ready to go when the time is right.
Tap into pre-allocated vendor funding. Consulting delivery firms can serve as the conduit for firms to tap into several funding mechanisms offered by major cloud hyperscalers (AWS, Microsoft Azure, Google Cloud) as well as the hardware platform providers to accelerate customer adoption and reduce the cost of delivery. Migration and modernization funds are also common, providing rebates or credits to offset the cost of moving workloads to the cloud or re-platforming legacy applications. In addition, firms can leverage marketing development funds that consulting partners can use for joint go-to-market campaigns, events, or solution accelerators. Finally, there are training and enablement grants that help upskill delivery teams and customers with cloud-native technologies. Combined, these funding mechanisms allow consulting firms to de-risk projects for customers, increase win rates, and build repeatable, scalable offerings.
Prepare a communication plan for your organization. Any of these scenarios will result in changes for the organization. This will bring about uncertainty among the staff as inevitably some projects may be delayed or canceled, causing employees to worry for their jobs. Use Forrester’s change management research to help your staff navigate through these impacts.
The implementation of these potential tariffs could be one of the biggest changes to hit your organization in recent memory. Are you ready? If not, schedule time with one of our analysts to help you get ready. If you think you are ready, still schedule time with us to review your plans. We may find something you missed and/or provide a second set of eyes for reassurance you’ve thought of everything.
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