Caution Prevails as CEOs Look to Pay for Future Investments with Cost Savings Obtained from Existing IT Operations There has been a major shift in CEO priorities from early in 2009 with top priorities switching from cutting costs to retaining customers and enhancing existing relationships, according to Gartner, Inc. Through 2015, a recession-era mentality among CEOs will ensure a policy of paying for future investments from the cost savings obtained from existing IT operations.
“From the CEO’s perspective, growing confidence that is tempered by business caution will result in an aggressiveness to harvest the successes of the past through improved productivity,” said Jorge Lopez, vice president and distinguished analyst at Gartner. “At the same time, CEOs are taking those returns and investing them in building a future that can deliver high returns.
“CEOs are maintaining tight cost control to deliver better margins and more cash to cope with the continuing economic turbulence,” said Mark Raskino, vice president and Gartner fellow.
Gartner has identified five key issues that CEOs should be focusing on in 2010 and beyond as well as related advice for CIOs:
CEO Issue No. 1: Getting to the End of Restructuring
CEOs are in the midst of finishing off the work they started in 2009: streamlining their business operations, dumping nonperforming or nonstrategic assets, and working to ensure that they don't let their "break-even" point start to rise and thereby increase their exposure to another economic shock. While many CEOs have continued to invest in initiatives that will improve their cost structure or allow them to drive revenue as the economy recovers, they are "financing" this by taking a very hard look at not only their internal cost structures, but also the cost structures of the partners in their ecosystems.
In this environment, CIOs are advised not to expect an increase in budgets in 2010 but rather to expect to “finance” future IT projects from the cost savings obtained in other parts of operations.
CEO Issue No. 2: Integrity, Corruption and Fraud — Rebuilding Trust
The imperative for rebuilding trust is as much to regain the confidence of customers, which will allow economic growth, as it is to regain governmental trust, which translates into electoral decisions. Companies are still in the early stages of that rebuilding of trust, and while Gartner is optimistic that this can be "repaired" for many companies in 2010 and 2011, the general distrust of economic conditions seems to be slowing down the return of the consumer — a difficult factor in the U.S., for example, where consumer spending comprises as much as 75 percent of all spending.
Accordingly, CIOs should expect to see increased interest in capabilities and technologies that help provide transparency to internal operations of the sort that increases trust. More openness will surround the financial structure of the organization, and expenses will be examined to high levels of detail. Business intelligence will see strong interest in this time frame.
CEO Issue No. 3: Planning for a Return to Growth — Playing Defense, While Playing Offense
This year is about CEOs taking a firm stand on plans for increasing shareholder value. This may be through acquisitions that are less expensive in a time of lower equity pricing or lower capital costs. It may also be about investing in initiatives that achieve a strategic goal.
CIOs need to understand that organizations are of two minds. They are investing in the innovations that will build the future, while guarding against the possibility of another economic recession or crisis in the next 36 months. For CEOs, this is one of the most difficult maneuvers to execute in business, as it must accommodate impulses that are sometimes contradictory. To this end, CIOs must ensure that they are able to segment the activities of the organization so that each part of the team can focus on what is most important: One team takes care of cost optimization activities, while another is focused on the future.
CEO Issue No. 4: Government Is the New Partner at the Table
In many advanced economies, during the past 30 years, state control and intervention in industries have been gradually rolling back. However, the tumultuous economic effects of the banking crises of 2007 and 2008 have driven swift and large-scale government interventions to bail out and save companies, and more market interventionist and state control styles of government may arise from this situation.
The resulting new regulations will require compliance by any new systems. Several areas will see new regulatory actions in the coming 24 months, including the financial services, automotive and transportation sectors. CIOs need to keep scanning the landscape of regulatory actions in federal, state and local governments, as the pace is expected to pick up in 2011.
CEO Issue No. 5: The Future of Recession-Driven Changes
One of the key issues in the boardroom is to understand the future of the changes forced by this recession. Will the growth in all industries return to the levels that were enjoyed before the downturn? Will the drive to improve process efficiencies be long-lasting, or will there be a marked return to a top-line focus in the business?
Gartner believes that IT has a significant role to play here because it needs to deliver insights for the business to enable it to effectively navigate the changes ahead. That means IT must make investments in understanding customer intent, predicting the impact of business conditions and connecting strategy to outcomes.
“These long-lasting changes place quite an additional load on IT. The long-term focus on efficiencies to reduce exposure to another financial crisis will continue to force IT to make the business of the past more productive, while IT must invest in the future at a rate that does not grow IT costs faster than the business,” said Mr. Lopez.
“CIOs should build an IT culture of intolerance toward inefficiency and impatience for the gains from newer lighter-weight technologies such as social networking, virtualization and mobile device apps,” Mr. Raskino said.
Additional information is available in the report “CEO Concerns: Peering Into 2010 and Beyond.” which is available on the Gartner Web site at http://www.gartner.com/resId=1314414.
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