Here is an interesting round panel discussion on 2009 challenges in the financial industry from Wall Street & Technology.
There is a major challenge for CIOs because they know what’s coming in the next year or two. They know they are going to be called upon to do much, much more with potentially much, much less. So potentially driving the efficiency in the IT organization is no small feat. They are going to have to figure out ways that technology can help.
The observations are specific to the financial industry, and as such are not very surprising. The industry remains beset by toxic assets on its balance sheets and declining (or highly volatile) asset values. Profitability challenges will constrain spending throughout 2009, on the top and bottom lines. Economists widely blame the current recession on “creative’ instruments and lack of regulatory oversight of the financial industry. In this environment leaders have little choice but to retrench on spending and deal with increasing regulatory scrutiny.
These observations don’t necessarily apply to other industries. Although the economic climate is challenged, there is opportunity in change, and 2009 may become a “breakout” year for aligning IT with organizational drivers. Alignment is a two-way street, and for many organizations it will not occur until IT is more successful in helping define strategic plans, rather than merely reflecting the organizational strategic plan in the IT strategic plan.
In a December 2008 survey of C-level executives titled IT’s unmet potential: McKinsey Global Survey Results (free registration required), McKinsey Global Institute documents the discrepancy between the desired and actual business results of IT. It also demonstrates some differences between the expectations among IT and non-IT executives. Of particular interest:
- Nearly two-thirds of executives believe their organizations are at risk of information or technology-related disruptions, and less than half believe they are prepared to manage these disruptions. Concern is greater among IT executives.
- IT efforts are concentrated on improving the efficiency of business processes, but there exists stronger desire to improve the effectiveness of these processes. An even stronger gap exists between the ability and desire for IT to help create new products or services.
- An even stronger discrepancy exists in the alignment of IT and business strategies. Whereas 67 percent of C-level executives desire strong alignment (“Business and IT strategy tightly integrated, inﬂuence each other”) only 22 percent said they actually are. Twice as many organizations said their corporate strategies are developed first.
The discrepancies between IT and non-IT executive responses were even more interesting:
- IT managers were more likely to emphasize improving the talent of their IT staff (57 percent) than their non-IT counterparts (42 percent).
- IT managers want to consolidate IT functions to a centralized IT (21 percent) than their non-IT counterparts (14 percent).
- IT managers are more concerned about reallocating budgets to focus on value drivers and improving IT governance and oversight.
- On the other hand, non-IT managers were more interested in outsourcing IT functions (22 percent) than were IT managers (18 percent).
- Whereas more managers expect to reduce IT operating costs in 2009 versus increase them (43 percent versus 23 percent), the numbers are almost perfectly inverted when they look at new IT investments (26 percent versus 41 percent).
The final point suggests 2009 may become a turnaround year for IT executives, in which IT is able to influence organizational strategy in order to capitalize on strengthening their positions during this global recession. This final point is important: change begets opportunity, and those organizations who strengthen their positions during the downturn will benefit during the next recovery. Often the ability to seize the opportunities is inversely related to debt carried, so look for cash-strong companies to become stronger.
By the way, the outlook for IT project managers also remains relatively strong.
Computer Economics reports zero growth in IT spending in 2009.
IT operational spending growth peaked in 2007 at 5.0% and then declined this year to 4.0%. As reported earlier in this study, however, a significant number (41%) of respondents do not expect to spend all of the money budgeted for this year, which means that the 2008 growth rate will almost certainly fall short of the budgeted 4.0% rate. That pessimism extends into 2009.
The news is even worse: Not only do more companies expect spending cuts in 2009 than increases, but many organizations have spent–or plan to spend–less than their budgets in 2008. It also means that in fixed dollar terms, IT spending will be down 3-4%.
IT spending is now a microcosm of the economy as a whole. The best and worst of expectations of Information Technology have been removed from C-suites, which means IT spending is more grounded in actual business performance. This is good, in that we don’t expect IT spending to underperform the broader economy, as we saw in the 2001/2002 recession, but it also means outlandish ideas of IT-derived productivity will not buffer IT from the current recession either.
In a nutshell, IT investments are more closely aligned with business requirements, which is a major goal of good IT governance.
As reported in Redmondmag.com, a new study released by Computer Economics suggests IT departments do anticipate major cuts in 2009, despite the downturn. However, a third anticipate cuts in travel and expenses. The executive summary, which is available here, says the research is based on surveys of 200 IT professionals, and it the 19th annual production.
However, they performed all the surveys in the first quarter of 2008, as would be expected of a survey of this scale. As a consequence, these results are probably out of date, as the economy has deteriorated even further since September 2008. Several technology and software providers posted disturbing surprises. Sun posted a loss of $1.68 billion. In October 2008 both Intel and SAP announced mediocre results, but suggested future sales would slow as a result of the downturn. Forrester reported overall tech spending growth may slow to 3-4%, if current trends continue through 2010. This is disappointing compared to previous projections, but IT spending appears to be holding up relatively well compared with other sectors.
I will keep my eyes on tech spending as more data becomes available.