If the optimistic hype of ChatGPT dominated the news two weeks back, the current topic du jour is undoubtedly more ominous, with the failure of Silicon Valley Bank continuing to impact the global financial sector. Given the severity of the situation, ETR conducted a flash survey of C-Level IT Executives from our community to measure what and how much that impact may be. We polled respondents for the impact on their organizations as it relates to their IT departments and vendor procurement. The impact of the bank failures, in tandem with the overall macroeconomic conditions, negatively impacts IT spending and project rollouts. ETR’s current Macro Survey data supports this notion, with 2023 IT Budget growth being revised lower yet again, from 4.6% growth in January to 3.4% today (see the preliminary data here).
Based on the survey data, we should expect vendor sales cycles and procurement to get longer than the above-average length that has been reported. This is because 75% of respondents reported an increasing involvement from their finance and legal departments to vet financial health and third-party risk management (TPRM). While the willingness to evaluate smaller, earlier-stage vendors were mixed, concerns around their ability to win large enterprise customers and execute product roadmaps were a common theme in the data set.
Please note that many of the C-Suite survey respondents are available on ETR Connect, our one-on-one consulting call service. Please reach out to the ETR Service team at service@etr.ai if you would like to set up a call with any of these CIOs and CISOs, or if you would like to discuss commissioning your own custom research.
Bank Failures Flash Survey Data
In the following sections, we break down the survey responses to measure the impact and possible derivatives that the recent bank failures will have on the enterprise technology landscape going forward. In addition, we also analyze the write-in commentary submitted by our C-Level survey respondents, and finally, we add direct commentary from ETR’s community of IT decision makers and practitioners.
Figure 1. How impactful have recent bank failures been to your organization?
ETR Data: 46% of respondents note an impact on their organization by the recent bank failures (Slightly, Somewhat, Very, or Extremely); 12.5% of respondents say it’s "Very" (8.3) or "Extremely" (4.2) impactful.
Figure 2. You mentioned that your organization was at least slightly impacted by recent bank failures. Do any of the following situations apply to your organization?
ETR Data: 65.2% of respondents say that their clients or customers have relationships with one or more failed banks. 52.2% of respondents say that vendors they are using have banking relationships with one or more failed banks. 34.8% of respondents say that their organization had a banking relationship with one or more failed banks.
Figure 3. Which actions does your organization plan to take in response to the bank failures?
ETR Data: Respondents note "Increasing involvement from the finance department in vetting the fiscal health of potential vendors" (43.8%) and "Increasing involvement from our legal department in vetting third-party risk management" (31.3%) as the two most common action taken by organizations in response to the recent bank failures, while a whole 35.4% indicated no action. Other write-ins: "Diversifying banking relationships" (2x); "Increased focus on key risk and dependence on single source procurement for key technologies.
Figure 4. How much do you agree or disagree with the following statements?
ETR Data: In a rather evenly split outcome, roughly 34% of respondents Disagree, while 31% Agree with the statement, "Our organization will be less willing to evaluate and utilize smaller, early-stage technology companies." However, more than 49% say 'Emerging Technology Vendors will have a more difficult time winning large enterprise customers". Lastly, 46% believe that "Emerging technology vendors will have a more difficult time executing on their product roadmaps."
This flash survey also included write-in answer options for our C-level respondents, which the ETR research team analyzed for mode and commonality to uncover underlying themes.
Based on an evaluation of the write-in answer options, there is clear and present anxiety about the impact of the banking failures on the macroeconomy, with “fear in the tech marketplace.” Some organizations are already anticipating additional cuts in their 2023-24 operating budgets, while others expect indirect impact from their clients that were affected. Some expect a loss of liquidity and delays to accounts receivable, product roadmaps, and more procurement struggles, among other disturbances. Many said the situation could get worse and are anxiously waiting to see how the situation unfolds and if other institutions become entangled. Two of the more ominous responses noted, “I think some of this is still yet to shake out” and “These failures may lead to a recession.”
Respondents indicated mixed feelings about the government stepping in and its ability to help. Some questioned their confidence in financial institutions and the government, while others worried that further instability in the market would be the very trigger to exacerbate notions of distrust and reduce confidence in these critical institutions.
One executive was “glad [that] the government stepped in, or else we could have had a domino effect.“ And another noted that their fears of further impacts were quelled “with the Fed backstopping deposits.” Still, the government does not come without strings attached. One respondent fears recessionary measures from the Fed. This “will, in turn, raise interest rates, which will impact companies' abilities to meet already strained supply chain demands.” This may cause some organizations to postpone future investments.
Moving on to the vendor evaluation and risk management portion of the survey, the submitted responses demonstrate that increased scrutiny of vendors and TPRM, along with more difficulty in funding, could lead to an uneven playing field. With enterprise technology start-ups struggling to secure cash and organizations assessing them more closely, the pace of innovation will stall, with ripple effects impacting larger organizations in terms of their own ability to create innovative solutions and progress their own technology infrastructure and security. “Emergent products that will need a certain amount of risk taking by the clients are less welcome, which then affects our innovation and being able to gain a market edge.” Another respondent had a tertiary take on the situation, commenting that despite the tight labor market and layoffs, he worries that people “may be hesitant to work for tech startups, which might accelerate the ease larger tech companies are feeling when it comes to hiring and retaining talent.”
One respondent stated that “There will be more diligence, and that's a good thing.” Which for some is already common practice, noting that they “already use multiple banks to provide redundancy for situations like this.” However, numerous other respondents were worried about the general “effects on the availability of capital and... overall market stability.” One noted another potential ripple effect: “If it becomes difficult for our clients to procure funding due to these bank failures... this will eventually impact the amount of business we get [from those clients].” One organization renegotiated its cash flow policies to have more cash available on hand, with another respondent expecting increased caution in funding going forward.
Amid the chaos, several of our CISO executives also noted that they are expecting an increase in phishing attacks with “attempts to redirect payments.” This is a notion that has also garnered attention in recent press articles throughout the industry.
Additional IT Decision Maker Insights
One survey respondent whose large technology organization was directly impacted by the SVB collapse did not mince his words when asked for his opinion on the crisis, stating, “It is a very big deal when your primary bank that you use for day-to-day operations (payroll, accounts receivable/cash collections, and vendor payments) goes out of business. There is a lot of work required to select and move your funds to a new bank and restart your operations.”
Regarding the additional inclusion of finance executives in technology vendor procurement, another survey respondent stated, “With inflation, recession fears, and layoffs in the past four quarters, finance teams (CFO/Controllers) have been added to the product/service procurement and customer acquisition/renewal process from a due diligence perspective. Their involvement determines if the product/service vendor and customers are financially solvent so we can complete projects, receive services, and collect on our invoices.”
Another added, “In our organization, Finance reviews the fiscal health of the vendors but really, we use a TPRM and a Vendor Risk assessment process that helps us with those qualifications when we talk about a small start-up. We also look at the VC trajectory as well to assess the benefits or impacts (special risk assessment) to determine if we want to engage or not with them. The situations that happened last week and this week for sure create a more challenging environment for them to get into the larger Corporate companies. This could create an environment where partnerships are going to be required to repair these bridges created by the SVB events.”
When reacting to the data about large enterprises’ willingness to continue utilizing smaller, start-up tech vendors, one survey respondent added, “Enterprises will continue to purchase from and use services from small businesses; however, the due diligence will be extended and put under a microscope.”
Yet another survey respondent who represents a large financial services organization succinctly summed up the data shown here by stating, “Because of these events, our Finance departments will certainly perform more due diligence with other smaller companies we evaluate and us, as well as the banks and investors that they are working with. This situation will make it challenging for emerging vendors trying to get enterprise-level contracts going forward. As an organization, we are on high alert right now.”
Contact the ETR Insights Team to Discuss this Analysis or to Request Custom Research: insights@etr.ai
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Enterprise Technology Research (ETR) is a technology market research firm that leverages proprietary data from our targeted IT decision maker (ITDM) community to provide actionable insights about spending intentions and industry trends. Since 2010, we have worked diligently at achieving one goal: eliminating the need for opinions in enterprise research, which are often formed from incomplete, biased, and statistically insignificant data. Our community of ITDMs represents $1+ trillion in annual IT spend and is positioned to provide best-in-class customer/evaluator perspectives. ETR’s proprietary data and insights from this community empower institutional investors, technology companies, and ITDMs to navigate the complex enterprise technology landscape amid an expanding marketplace. Discover what ETR can do for you at www.etr.ai