Monday, August 09, 2010

Managing IT in a downturn

Managing IT during Global Economic Meltdown

As the global economy collapses, companies are bound to trim spending to improve the bottom line. Since information technology is bucketed as cost, senior executives inevitably will turn their attention to IT budgets for substantial contributions.  Earnings miss by SAP (read article here) indicates that both Multinationals and SME (small and medium enterprises) are nervous of the credit crunch and its impact on the global slowdown of economy.  They are delaying their Enterprise Application Deployment.
Yet in some instances, IT investments deliver more value to a company’s top and bottom lines—by creating new efficiencies and increasing revenues—than any savings gained from traditional IT cost cutting.  This according to McKinsey Article titled Managing IT in a downturn: Beyond cost cutting

McKinsey Survey has identified number ways technology investments that can have a substantial impact
•    Manage sales and pricing. Develop insights into customer segments and improve pricing discipline to increase revenues without increasing prices.
•    Optimize sourcing and production. Rethink supply chains and logistics to improve the scheduling of deliveries and inventory management.
•    Enhance support processes. Improve the management and use of field forces (such as installers and field technicians) and of customer support centers.
•    Optimize overhead and performance management. Sharpen awareness of risk exposure and improve decision-making and performance-management processes.
The article further says, to extract value from these opportunities, companies must make managerial improvements in two areas.
Developing new insights : Few companies have successfully capitalized on the explosion of data in recent years. Often this information, residing in separate IT systems or spread across different business units, has never been mined for insights that could add value. When such teams use the data to compare best practices across regions or to identify under- and overserved customers, for example, they can identify hotspots of revenue leakage.
Optimizing processes : As IT becomes tightly integrated with processes, breaks in workflows often get built into systems and diminish productivity. Shining a light on these areas with an integrated view of operations and technology may well surface problems, which often involve outdated processes, manual steps, redundancies, and bottlenecks. An 80/20 approach can highlight a modest number of activities that, when corrected, deliver a disproportionate amount of value. Companies can usually apply these fixes in short order. Adjustments to workflow processes may also promote greater adherence to corporate sales-discounting and bidding policies.
These findings by McKinsey, highlights the need for companies to have an IT strategy.  Without well thought out IT strategy, any macroeconomic changes (as seen in the past few days) has a tendency to derail IT investment (be it in infrastructure like virtualization or software implementation like SAP).  Companies that refuse to lose focus due to these short term distractions, and continue to invest in their IT, will in my opinion emerge much stronger at the end of this proverbial dark tunnel.

IT Strategy Amid Economic Uncertainty

October 17, 2008 by Raj Sheelvant
Of more than 600 business technology execs who responded to the survey in July 2008, 40% said they had decreased their IT spending that quarter relative to their 2008 budgets according to the article How CIOs Are Setting IT Strategy Amid Economic Uncertainty.
While the market grabbed attention past couple of months, the underlying concern is that a global economic slowdown, fueled by a credit crunch, could cut companies’ revenue.  And, given the potential for the economy to slow quickly, IT leaders must engage fellow execs and business-unit leaders directly. Otherwise, people assume a big-dollar project just has to get done.
What else should business technology leaders do amid economic uncertainty? Here are bits of advice from the above mentioned article:
Have a playbook.
Develop a prioritized project by a variety of factors–cost, resources, technology, time frame, risk–so managers can see their choices as business conditions change.
Not the same old drill.
Three to five years ago, options such as cloud computing and software as a service didn’t exist hence start evaluating new and disruptive technologies now, in case a tougher economic climate forces spending cuts and new approaches.
Rogues are reality.
Because smaller IT team can’t respond fast, business units may start rogue projects outside IT.  Be cognizant and let the business go forward, at the same time don’t let them run rampant.
Reprioritize by pushing new-project selection over the next few quarters, assigning high priority to lower-risk projects so the company can respond quickly to economic changes.
Honestly assess the company’s attitude toward IT.
Is IT a competitive advantage, where spending can help with business problems related to tightening credit and cash flow? Since many companies see IT mostly as a cost to be contained in a slowdown, IT management needs to roll up their sleeves and highlight the ROI for software projects.
According to the article bottom line is UNCERTAINTY = DEMAND.  The uncertain economy only increases the demand on IT. Closer collaboration has been the megatrend of business technology this decade–embedding IT into the fabric of business processes, and forever erasing the line between “IT and the business.” Leaders can’t let this economic slowdown, whether it proves mild or fierce, set back that progress.

JIT Strategy

September 16, 2008 by Raj Sheelvant
race-car-in-fog.jpgExcellent article on changing corporate strategy on McKinsey Quarterly titled Just-in-time strategy for a turbulent world.  Article states that the classic approach to corporate strategy starts with a presumption: that with sufficient analytical rigor and an adequate assessment of the probabilities, strategists can pave a predictable path to the future from the matter of the past.  Well, the downside of this approach as you guessed it, is the inability of the organization to quickly adapt to changing environment.  This approach used to work out well in the past because the global macro economic conditions changed slowly.  This ensured that the industry and the competitors changed slowly giving the organization a long lead time adapt to the changing environment.  In this environment a business strategist could be compared to the captain of a large ship peering through the binoculars on a clear day.  Anticipating change far ahead, business strategist would be able to change the direction of the ship well ahead of time.
Well, business strategist in today’s hypercompetitive globalized economy does not have the luxury to use the ‘classical’ method.  In this new environment, the business strategist can be compared to a race car driver moving through the winding lanes on a foggy day with the competitors following closely behind.  The article proposes JIT (Just in time) strategy to adapt to this new reality.   In this new JIT approach Strategy today the corporation has to align itself to the fluid nature of this external environment. It must be flexible enough to change constantly and to adapt to outside and internal conditions even as the aspiration to deliver favorable outcomes for shareholders remains constant.
The process requires the CEO and the management team to keep an open mind about where the company might be headed. Inherent in this approach is the understanding that future decisions and future outcomes are likely to vary enormously from initial hypotheses. The whole process resembles art more than science. Most of the critical decisions involve subjective judgments that, unlike those generated by more deterministic strategies, will be informed by not just the highest-quality staff work but also the knowledge gained as time passes.
The article concludes by stating that the traditional deterministic approaches to strategy aren’t likely to be up to the task of helping companies negotiate these dangerous waters, but executives need not put the fate of their businesses entirely in the hands of chance. As the global environment continually changes and risk levels rise, a portfolio-of-initiatives approach holds out the opportunity for corporations to be as flexible and adaptive as the markets themselves.

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