IT savings may pump future spends

MUMBAI, INDIA: Through 2015, a recession-era mentality among CEOs will ensure a policy of paying for future investments from the cost savings obtained from existing IT operations. 

There has been a major shift in CEO priorities from early in 2009 with top priorities switching from cutting costs to retaining customers and enhancing existing relationships, according to Gartner, Inc.

“From the CEO’s perspective, growing confidence that is tempered by business caution will result in an aggressiveness to harvest the successes of the past through improved productivity,” said Jorge Lopez, vice president and distinguished analyst at Gartner. “At the same time, CEOs are taking those returns and investing them in building a future that can deliver high returns.

“CEOs are maintaining tight cost control to deliver better margins and more cash to cope with the continuing economic turbulence,” said Mark Raskino, vice president and Gartner fellow.

Gartner has identified five key issues that CEOs should be focusing on in 2010 and beyond as well as related advice forCIOs. CEOs are in the midst of finishing off the work they started in 2009: streamlining their business operations, dumping nonperforming or nonstrategic assets, and working to ensure that they don't let their "break-even" point start to rise and thereby increase their exposure to another economic shock. While many CEOs have continued to invest in initiatives that will improve their cost structure or allow them to drive revenue as the economy recovers, they are "financing" this by taking a very hard look at not only their internal cost structures, but also the cost structures of the partners in their ecosystems.

In this environment, CIOs are advised not to expect an increase in budgets in 2010 but rather to expect to “finance” future IT projects from the cost savings obtained in other parts of operations.

It advises next to focus on 'Integrity, Corruption and Fraud — Rebuilding Trust'. The imperative for rebuilding trust is as much to regain the confidence of customers, which will allow economic growth, as it is to regain governmental trust, which translates into electoral decisions. Companies are still in the early stages of that rebuilding of trust, and while Gartner is optimistic that this can be "repaired" for many companies in 2010 and 2011, the general distrust of economic conditions seems to be slowing down the return of the consumer — a difficult factor in the U.S., for example, where consumer spending comprises as much as 75 per cent of all spending.

Accordingly, CIOs should expect to see increased interest in capabilities and technologies that help provide transparency to internal operations of the sort that increases trust. More openness will surround the financial structure of the organization, and expenses will be examined to high levels of detail. Business intelligence will see strong interest in this time frame. 

The resulting new regulations will require compliance by any new systems. Several areas will see new regulatory actions in the coming 24 months, including the financial services, automotive and transportation sectors. CIOs need to keep scanning the landscape of regulatory actions in federal, state and local governments, as the pace is expected to pick up in 2011. 

Gartner believes that IT has a significant role to play here because it needs to deliver insights for the business to enable it to effectively navigate the changes ahead. That means IT must make investments in understanding customer intent, predicting the impact of business conditions and connecting strategy to outcomes.

“These long-lasting changes place quite an additional load on IT. The long-term focus on efficiencies to reduce exposure to another financial crisis will continue to force IT to make the business of the past more productive, while IT must invest in the future at a rate that does not grow IT costs faster than the business,” said Lopez. 

“CIOs should build an IT culture of intolerance toward inefficiency and impatience for the gains from newer lighter-weight technologies such as social networking, virtualization and mobile device apps,” Raskino said.