Good Times, Bad TimesBy Kevin Fogarty | Posted 2008-02-21 Print
Baseline 500 companies handle the economic ups and downs with focused IT spending. You should too.
In good economic times, tech consultants tell companies to spend money on technology to increase revenue and continue growth. In bad economic times, they advise spending on IT to reduce costs and maintain market share.
It’s not that the advice is always to spend money on IT. It’s that spending ineffectively on IT, or not spending at all, is so critical a mistake for any business that it can cut short the good times and extend the bad, according to CIOs in the Baseline 500 and analysts who study the economic impact of IT.
The Baseline 500—a ranking thick with companies using technology to add new revenue streams, maximize existing revenue and automate intricate processes—is based solely on how effectively a company uses technology to add value to its products or services.
The funny thing about value, though, is that you can increase it in one of two ways: by adding something that wasn’t there before or by stripping cost from the thing being valued. Guess which approach is hot this year?
“These are not easy times for CIOs or anybody else who is responsible for technology and innovation,” says Bart van Ark, an economist and director of international economic research at The Conference Board, a research organization and CIO think-tank based in New York. “In times like these, we see pressure on investments like IT, which can be easily targeted for cuts.”
The confidence of CEOs in the U.S. economy is at its lowest level since 2000, according to one Conference Board study.
Preparing for Budget Cuts
According to the Future of IT survey Baseline conducted during the fourth quarter of last year, 46 percent of senior-level IT professionals expect to have their budgets cut if the economy does slide into an officially recognized recession. A third thought a drooping economy might smother their own jobs.
“This is really a crucial stage for companies deciding whether to continue to get their productivity benefits from technology projects or end the process at a premature stage,” van Ark says. “It’s self-defeating, obviously, but if you look back at 2001 to 2004—the period after 9/11 when we moved into a brief recession—that was the period in which the biggest gains from IT were realized, bigger even than before 2001. It’s very clear that the worst thing you can do is shift IT aside and wait, because by that time, there will be other players ready to take over.”
Economics, not cost-cutting, is what CIOs should be thinking about because that will make IT part of the business, not just a separate entity aligned with it, experts say.
The issue isn’t about IT in isolation, according to Nick Ibrahim, chief technology officer for Ruby Tuesday, (Baseline 500, No. 47) a $1.4 billion, 900-plus-location restaurant chain that topped the food-and-beverage division in last year’s Baseline 500. The technology element connected to an effective business process won’t be cut unless that end of the business is, he says, adding that IT should be so integral that there’s no need to consider it as a separate entity from the business process.
Ibrahim’s top-of-mind IT project is a direct-mail effort to reach potential customers near each restaurant and lure them in with coupons that can lead to the creation of a database of promotion-minded customers. The “how” of the project involves sophisticated data warehousing, data mining and demographic data analysis, but the project itself is pure marketing and customer acquisition.
“I’ve always preached that view of the future,” says Ibrahim, whose 12 years as a customer relationship management consultant at Dun & Bradstreet shaped his perspective to the point that he views even “pure” IT issues through the lens of their end result, rather than on technologic criteria alone.
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