Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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The context for 2010 planning will be challenging

by Mark P. McDonald  |  June 22, 2009  |  2 Comments

Personal Observation – like all of these entries

Companies will start their 2010 strategy and planning sessions in the next six weeks, unless they have not already started.  Every planning process looks first at current operations and the competitive marketplace in an effort to forecast future operations, investments and resources. 

That is the rub – many will be overly pessimistic in their views on the economy and business activity.  After all economic activity has fallen in many industries by more than 10%, Japan’s exports have fallen by more than 40% and the stock market while recovering somewhat is still well off its highs.

Companies using their 2009 performance as a guide are more likely to see 2010 as another down year, perhaps even lower than 2008 and prepare accordingly – with even lower investments across the board including IT.  According to more than 900 CIOs responding to Gartner Executive Programs Q1 2009 IT Budget update survey, more than 900 companies, global IT budgets at the end of the fourth quarter were an average of 5%.

CIOs and IT leaders will facing this planning environment will need to change the conversation from budgeting IT expenditures to changing the company’s cost structure and performance.  That change is not going to happen on its own. 

CIOs will continue to find themselves pulled in opposite direction in 2010. 

The first one is obvious – continue to reduce IT costs.  

CFO’s and strategists will readily see this as central to the 2010 plan and strategy.  After all in an environment of reduced revenues cost reduction is a sure path to preserving profitability.  However, after three years of cost management and the actions taken in 2009 this will be an increasing challenge for CIOs. 

This will be a unique challenge in 2010 because unlike past recessions, CIOs report that transaction and storage volumes continue to grow.  This means that enterprises have to work smarter by working in new ways than working harder by doing more with less.  Here is a link to a blog entry on this subject http://blogs.gartner.com/mark_mcdonald/2009/02/02/do-you-have-an-emerging-capacity-gap

Your 2010 plans will need to ‘answer the mail’ on this one, probably supporting another 5 – 15% reduction in operating costs.  Given the degree of outsourcing in many companies, these reductions cannot be achieved by simple labor arbitrage.  You will need to change the way your work and the drivers of IT’s cost structure. Here is a link discussing the differences between labor and requirements arbitrage http://blogs.gartner.com/mark_mcdonald/2009/03/12/requirements-versus-labor-arbitrage—its-a-matter-of-time

The second requires leadership – adjusting the enterprise to new economic realities.

The global financial crisis is becoming a global economic crisis, demands for continued transformation will increase as companies change their products, services and operations to better match resources with revenues and customer needs. 

Please follow this link to see Mark Raskino discuss the need to plan for economic recovery.  http://www.youtube.com/watch?v=4gMMEjNXcXw

CEOs and business unit leads know that they need to do something different to attract and retain customers and generate revenues.  Consider what is required for you to consider making a significant purchase and you know that what constitutes an effective value proposition in this market has changed. 

A few things that we have discussed with leaders are adjusting to these realities:

  • Making the company easier to do business with by removing complexity in the customer interface and interaction model.  The easier it is for customer’s to engage your company and products, the lower the barriers for customer choice.
  • Raising product differentiation in the marketplace by enhancing differentiation to customers and in the marketplace.  Why do customers choose your product?  What are the differences they value?  Enhancing these aspects of your company is an area for further investment.
  • Improving pricing power through raising the quality of your customer base.  This involves refining your go to market investments and return on customer acquisition and marketing.  You do not have the resources or time to chase the wrong customers in this economy.
  • Managing operating profitability by eliminating redundancies, restructuring operations and discontinuing non-value added activities.  The goal here is to change the cash, capital and cycle time requirements to generate and fulfill demand.

CIOs need answer how they will address these points in addition to lowering their cost structure.  If they do not do this, then they are telling their peers that IT has two feet in current operations rather one foot or a few toes in the future.  This leaves business executives with little choice but to further cut the IT budget as current operations are challenged and seek change and growth somewhere else.  That is the environment we face for 2010 and it will reality unless we broaden the context.

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Category: 2010 budgets CFO Economy Leadership Strategy     Tags: , , ,

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