Is There an Upside to a Downturn?By Jack Santos | Posted 2008-09-29 Email Print
Revisit decisions made in good times, and the result will be a leaner, financially capable organization.
A few months ago, there was media buzz about how IT can lead the way out of our economic morass. Well, fuhgeddaboudit.
Europe is talking recession. Oil, though off its recent highs, continues to stay above $70 a barrel. Inflation? Up. Unemployment? Up. What many thought would be a short and sweet downturn, with a recovery in 2009, is turning into a long and deep one. There is little that IT, on its own, can do about the economy. At best, we’re looking at years of stagflation; at worst, a significant economic downturn.
So what can a CIO do? Keep your eyes on the bottom line. No doubt, requests for staff cutbacks will be coming over the next few months and into 2009. Hopefully, you are already on your way to chalking up real dollar savings with virtualization projects, or positioning the network for increased mobility (read: work at home).
A recent Goldman Sachs report sees growth in IT spending dropping from 7 percent last year to 5 percent this year. These days, that’s a positive outlook, because, so far, IT budgets have been taking cuts only in their annual growth rates rather than in overall budgets.
The major spending areas have been virtualization, server consolidation, application integration and data center consolidation. These projects have clearly defined goals and completion dates, but once these efforts are done … watch out.
My guess is that the savings from hardware and software efficiencies won’t be enough. We are already seeing significant staff cutbacks in the finance industry, as well as in all the usual suspects, such as automakers and major multinationals.
Chances are, by the first quarter of 2009—depending on your industry and the state of your business—you’ll have to start thinking about substantive project cuts, especially if you’re not cutting back already. That means drawing up an evaluative process for personnel needs and potential staff reorganizations. IT management should be focusing on small, short-term projects that deliver real results, while preparing staff for the “downsizing waves” that many think are inevitable.
Of course, not all businesses are the same, and some actually thrive in a downturn. We’re seeing this to some degree with regard to automakers that anticipated the change in small-car preferences, as well as with companies that worked diligently on their overseas and export markets, especially in the Pacific Rim. Oil companies have learned from prior downturns and, although flush with cash, they’re not spending wildly and are gearing up for production expansion. The economic baton, which was passed from the dot-coms to the biotechs, is now on its way to the carbon-free energy crowd: solar, wind and nuclear.
What can IT do to help the economy? It may be as simple as preparing for a long pause. Are there ways to pick right, cut smart and organize for the future? Sure there are! And it pays to know how to do that, even in an up economy. There may even be an upside to being forced to look closely at what you’re doing.
At Burton Group, we’ve seen companies that started on server consolidation late last year or early this year now beginning to reap the savings—mostly through virtualization. Data center consolidation is also a high priority for cost reduction. Many are finding that a reduction in facilities, or using co-location or hosting facilities, will quickly manifest itself in real operational dollar savings. We’re also seeing cost-cutting efforts based on storage virtualization.
“Consolidation, consolidation, consolidation” is the mantra among many of our client companies—reducing the number of vendors through contract renegotiation and keeping a keen eye on eliminating products that are similar in function. This is particularly true in the data-management and database arena.
Many large organizations are experiencing “product bloat” and are paying for products that were originally selected because of arcane features that were never used. Various business units end up with different products that have similar software functionality, and now realize that decisions made in a go-go budget year should be revisited in a downturn. They’re going after potential savings through combined purchasing power.
On the network side, we see many organizations revisiting their network designs to take advantage of network overlay technologies (using VPNs) and to eliminate more expensive private-carrier options.
Economic downturns are a time when “business as usual” no longer applies. Decisions made in good times need to be revisited, and the end result will be a leaner, financially capable organization. That’s the upside to a downturn.