Coping with economic calamity

Shvetank Shah, executive director of the IT practice at the Corporate Executive Board, is in continuous contact with hundreds of CIOs and IT vice presidents. So I took the opportunity to ask him how CIOs have been reacting to the last few weeks of economic calamity.

Of course, 2009 budgets were already expected to be lean -- and now they'll need to be cut more. Shah says that CIOs who've already done offshore outsourcing and server virtualization are "scrambling to figure out where the next generation of cost-cutting will come from" when the CFO asks for another 15% cut.

One classic technique is to get tougher with vendors at the negotiating table. Another approach is to scale back IT projects -- either by delivering less functionality or rolling it out to fewer users (or regions) -- without losing the talented staff.

Even more important, Shah says, is to have a "crisp conversation" with the heads of business departments to manage the demand for IT. What level of IT service can they now afford? Maybe that "gold" level of service needs to drop to "silver"? Maybe IT can't pay for every gadget someone wants?

Smart CIOs realize that "It's not my budget; it's the business' money. What we can discuss is cost, tradeoff and value." And they're beginning to realize they need a better funding model: a service catalog and consumption-based chargeback, in order to manage IT demand at the business units.

Shah laments that the economic downturn may bring back the world of oppressive IT governance. After the 2000-2002 recession, companies replaced "decibel-driven" IT decision-making with "an amazing amount of bureaucracy" requiring strict ROI calculations. It was an over-correction that meant IT couldn't respond quickly to business needs, he says. The pendulum had begun to swung towards "informed intuition," but the economic downturn may mean the "hammer drops" again and we go back to IT-by-spreadsheet, Shah says.

A big worry is whether the "IT innovation budget" -- usually only 9% of the typical IT budget anyway -- will be slashed in this economic climate. That's the part of the budget that provides competitive advantage. But only the most enlightened CEOs will be wise enough to avoid cuts there, Shah says.

"In places where the CIO reports to the CEO, you at least have a shot at that conversation," he says.

One bright spot in all of this gloomy news: Shah says "an amazing amount of quality IT talent will become available" (some of it from layoffs in the financial services industry). Aggressive, gutsy CIOs can take advantage of the situation and snap up some of these folks, though that may mean letting go less-stellar talent already on staff.

Finally, Shah says the economic downturn gives CIOs the "hammer" to overcome the political hurdles that have stymied efforts to outsource, consolidate systems and simplify IT ("let go of things on the margin"). For example, CIOs can argue that the company can no longer afford to have 700 systems and 100 different software packages -- simplification saves money.

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