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Fri, Jan 11, 2008 14:51 EST
Managing IT in a Recession
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Posted by: Thomas Wailgum in Questions Topic: Enterprise Management
Current Rating: |
You can't click on any business or consumer website (or read the newspaper or watch TV) these days and not see the impending financial doom-and-gloom: "Odds of Recession Seen Rising," says The Wall Street Journal. "Stocks Slide Amid Subprime Woes," from The New York Times. Even the humor site The Onion is getting into the mix: "U.S. Takes Out Debt-Consolidation Loan."
While technology sites, like CIO.com, have been following this news (perhaps alluding to the possible economic consequences in our articles), no one has really asked the question of what should CIOs be doing to prepare?
IT budgets and spending plans have been set long ago, though I'm certain changes can be made on the fly if something unplanned for arises.
So what I'm wondering is: What kind of belt-tightening do CIOs do, if they do anything at all, at this time?
After all, the recession isn't a sure thing. "The Federal Reserve is not currently forecasting a recession," said Fed Chairman Ben Bernanke in a recent Journal article. In addition, he pointed out how difficult it was to actually call (or determine) a recession, due to the volatility of the financial markets and uncertainties in economic trends.
For CIOs living in the day to day, do drastic (and perhaps unwarranted) cost-cutting measures serve only to cause undo angst among staffers? Or does that fiscal foresight bode well with your executive peers and boss (CEO or CFO)?
On the other hand, should you avoid looking like Chicken Little, and ride out any potential storm and take necessary financial actions when the bad weather actually hits?
This seems like an area where CIOs with lots of experience (where were you in the early 90s and after the dotcom bust?) could provide some historical perspective and sound advice to others. What's your take?
There is a school of thought that claims that CIOs saw the economic woe train coming down the track last fall and factored in the subprime, energy cost challenges into their 08 budgets. Plus, some believe CIOs learned a lesson from the scorch the earth budget cutbacks in the 2002 recession. This time around they are wisely segmenting their IT spend into discretionary and non-discretionary items. New data from IDC reports pcs, mobile handheld devices, operating system software, office productivity software purchases will be cut back if times get tighter in the coming month. But many companies, particularly very large firms who compete on the global stage, these firms generally now earn 55 to 60 percent of their revenues from outside the United States....many of which are economically still booming. While these firms, too, might forgo pc hardware and software upgrades, they will continue headstrong with IT projects deemed strategic and non discretionary. Ergo, a possible recession, if it comes (or maybe we are already in it)will have different impacts on different sectors of the IT industry.
Globalization should minimize overall impact of the sluggish US economy. Two things should keep most of the organizations healthy on their balance sheet at least for a while (except the heavy hitted organization sectors – Home and Financial sectors). First is the booming market in last couple of years allowed sufficient cash on balance sheets to survive next couple of slow quarters and the second is reaching beyond US customers in the global market.
However, organizations will be more cautious in spending and would definitely tighten-up the overall budget including IT budget. In this case, I think CIOs will monitor the overall IT spending and probably will cut in the following areas:
1. If not started yet, outsourcing will be the first consideration point
2. Upgrade to the latest software and operating systems (Microsoft Vista, Office 2007)
3. Upgrade to hardware/infrastructure
4. Provision of handheld devices to the employees
5. Economic Travelling
6. CRM Implementation
7. Cut number of Pizza slices per developers!
To survive in very competitive globalized market, CIOs will still continue focusing on the following areas:
1. IT Governance
2. Security
3. Streamline business processes to improve productivity
4. Concept of virtual organizations
5. Online market capabilities
6. Improve quality of the existing products
7. Training
Ashish Ghoda
http://www.technologyopinion.com
Rating:
Ashish,
Outsourcing is usually one of the first avenues to save costs because it enables CIOs to deliver IT projects using global workforice at lesser costs.
Why do you think outsourcing will be the first consideration point for CIOs? India, China and others gained significantly during the last recession.
Thanks!
Sorry for replying bit late.
What I actually mean is CIO will consider Outsourcing (if not started yet) to cut the overall IT spending.
I understand the confusion the way I put out that point. I completely agree you. In the given market situation outsourcing is one of the best strategies to cut overall spending. However, you need to be very careful in implementing the outsourcing strategy for being successful and get the maximum Return on Outsourcing (ROO).
Ashish Ghoda
http://www.technologyopinion.com
There are two avenues of potential budget assistance when it comes to outsourcing:
One:
Certainly IT vendors are seeing a bit of a slowdown in new sales. Anytime there is a scare like this, people tend to sit tight - waiting for a sunny day. It is a great time to get favorable pricing - especially if you can outsource more than one item to them (in which case they do not need to retain full margin on any one service).
Two:
For existing vendors - it is a good time to approach them to see if they would drop their pricing if you signed an extension on existing services, or if they would shave their pricing if you picked up an additional service.
Saving through spending can be very effective if you think it through and plan carefully.
Chuck McMahon
Perimeter eSecurity/USA.NET
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