How CIOs Are Setting IT Strategy Amid Economic Uncertainty

As H.B. Fuller CIO Steven John absorbed last week's tumultuous economic events, it "made me go down the hall to talk to the CFO." It's a simple and essential action item for CIOs today--personally take fresh stock of the company's financial situation, to make sure IT spending and projects have the same priority they did even a few months ago. Those who don't risk being out of touch with fast-changing economic realities. Last week heightened the sense of economic uncertainty, as U.S. stock markets plunged, then rallied, then teetered in doubt waiting for Congress to act on a bailout plan, action unresolved as InformationWeek went to press. While the market grabbed attention, the underlying concern is that a global economic slowdown, fueled by a credit crunch, could cut companies' revenue. Caution is in the air. H.B. Fuller, which makes adhesives, is coming off a strong quarter, so the financial turmoil creates a "what if" concern. But the company's approach is one heard a lot lately: It's not freezing IT projects, but it's less tolerant of risk. "The bar goes a little higher," John says. Of more than 600 business technology execs who responded to our survey in July, 40% said they had decreased their IT spending that quarter relative to their 2008 budgets, and a more recent Forrester Research survey reveals similar belt-tightening. SAS Institute CEO Jim Goodnight, the day after meeting with a big Wall Street financial customer last week, said even there he sees no panic. At least he expects the customer to follow through on its million-dollar-plus contract with SAS. As for the Wachovia business SAS recently secured, before its government-assisted Citibank buyout bid and Wells Fargo's counteroffer: That's a whole 'nother story. As CIO of Daimler Financial Services Americas, the lending arm of Mercedes-Benz and Daimler trucks, Jan Brecht's feeling the effects of tight credit and slower consumer spending. In discussing IT strategy with fellow executives, Brecht uses a triangle with these imperatives at the points: Optimize IT, areas to cut; Build IT, projects to spend more on to give the company an edge; and Empower IT, training programs he's staunchly defending to build skills and keep up IT morale. An example of Build IT is a system Daimler Financial is implementing to do automated analysis of vehicles coming off lease and route them to the most profitable channel, such as dealer resale, lease extensions, or auctions. Daimler Financial's in "reprioritization more than pure cost-cutting mode," Brecht says. "IT is probably more in demand than ever." IT organizations are moving into "Mother may I?" mode, says Geoff Endris, CTO of insurance company Capital Assurance. "You have it budgeted, but you have to ask permission to spend it," he explains. Endris isn't cutting spending, but he's preparing his IT team for that possibility. They're reviewing discretionary spending--consulting, training, new software, research. He realizes a hiring freeze could be on the horizon, yet he resists the temptation to hire quickly for several high-skill jobs he's had trouble filling. Better to ride out a short-term shortage than live with a hiring mistake. "I'd rather have a three-month problem than a two-year problem," he says. Endris doesn't expect the high-skill talent market to improve, even if a slowdown leads to layoffs. If that happens, the best people will just become more cautious and less likely to switch jobs, he says. Tough Cuts As head of IT for commercial real estate developer Lauth Property Group, Jeff Ton has had to make the tough cuts many IT leaders have only considered so far. The macroeconomic trends hit real estate developers early, first with the slump in residential building, then in retail and office space. So Ton started the year having to cut IT staff and re-evaluate projects. Yet the reality for Ton and others is that, in a slowdown, IT's often the answer--using technology to automate and get more efficient. For example, as Lauth sets its 2009 budget, Ton sees a document management initiative as vital for productivity gains in a paper-intensive industry. Ton is spending more time with business-unit leaders to gauge their sensitivity to the economy, even talking with them about small purchases--say, $5,000 for software for the retail group. "It's these kind of small-dollar decisions that guide the larger ones," he says. "If they don't want to spend $5,000, they probably don't want to spend on a much larger one." 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. "Well, it doesn't have to, because the business didn't have it yesterday and the company still ran," Capital Assurance's Endris says. Procter & Gamble CIO Filippo Passerini says his team is focused on two main areas in trying to "lead change" for the company: picking clear priorities that sync with business priorities, and being flexible enough so that IT pros can "flow to the work," as he describes it, as priorities change. What else should business technology leaders do amid economic uncertainty? Here are other bits of advice we gleaned from more than a dozen interviews last week: • Have a playbook. Emerson Electric's business planning includes creating "playbooks" that anticipate changing events, and IT follows a similar process. CIO Steve Hassell says the key is a "balanced portfolio of projects" prioritized 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, says Shaklee CIO Ken Harris. But they take time to put in place. Which is why Harris' IT team is evaluating them now, in case a tougher economic climate forces spending cuts and new approaches. "If and when things tighten, it will likely happen quickly," he says. • Rogues are reality. At Lauth, Ton knows his smaller IT team can't respond as fast as he'd like, so business units may start rogue projects outside IT. "Some of that you might have to 'allow,' to let the business go forward, but you don't want it to run rampant," he says. • Fine-tune. Spectrum Laboratory Network, a medical lab group, has been growing 20% or more annually for years. But seeing a slight downturn in physician office visits, CIO David Moore is edging back some capital spending, pushing into next year upgrades to some 4-year-old servers. Emerson is continuing long-term strategic projects, including a global data center consolidation, but it's "biasing" its new-project selection over the next few quarters toward shorter-duration, lower-risk projects so the company can respond quickly to economic changes, Hassell says. • 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? Carl Weddle, IT director at Quality Trailer Products, knows the company sees IT mostly as a cost to be contained in a slowdown, so he gets why his team is being pushed to finish projects without additional funding, and why no new hires are likely. "It is hunker-down time," he says. UNCERTAINTY = DEMAND At other businesses, the uncertain economy only increases the demand on IT. At CME Group, formed from the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, futures and options trading hit their all-time high last month, with just under 1.6 billion orders in a week. So CME's not tinkering with its $175 million IT capital budget. CIO Kevin Kometer says times like these require even closer collaboration with business units, "making sure we meet their expectations." 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.