2010 and perhaps 2011 will be extraordinary years – they will be years of transition. A transition year is unique because it represents a time of adjustment and uncertainty as common forces have different impacts on individual enterprises, geographies and company strategies. There are no clear or universal ‘must dos’ in a year of transition, rather they are times where leaders make the changes necessary to get ahead and everyone else just gets buy.
Economically 2010 is a year of transition from economic recession to recovery. Economic times are improving in some countries and industries, but recovery is far from even – a hallmark of a transition year.
CIOs recognize this and 41% of them, when asked in the 2010 CIO survey, indicated that they see their firm facing further contraction of revenues in 2010. The outlook is not bleak as 38% saw a recovery of revenues, but only 6% saw a return to real growth which is 2010 revenues above 2008 levels.
Different industries had different outlooks, particularly when you take geography into consideration. The outlook for public sector and higher education was relatively bleak, while manufacturing and financial services CIOs saw recovery coming to a greater degree. Western Europe’s outlook was cloudy with partial clouds in North America and brighter views in Asia and Latin America. So clearly the economic context is one of caution and continued stress not globally as much as for individual firms working in individual industries and countries.
The transition from recession to recovery presents unique challenges to the CIO who has already faced tough choices in 2009. Both last year’s choices were relatively simple compared to the challenges of the next two years. Here is why.
In a recession and following the need to cut costs faster than revenues, the decisions are tough and gut wrenching but the direction is clear – cut costs. That single direction, shared across the enterprise takes a dimension out of the investment decisions as you err on the side of postponing everything that sits on the fence – its just the conservative thing to do in an environment where the direction is down. It is also something that is relatively easy to reverse – making the decision tough but not necessarily cataclysmic.
In a recovery the answers are more complex. Particularly in this recovery as it is not immediately leading to growth but rather recovery means a reversal in the downward trend in revenues. Executives face a decision of where to invest to support recovering revenues rather than continued cost cutting. That means their decisions can be wrong, they can invest in markets, customers or processes that do not recovery and that can be cataclysmic as the market opportunities of the recovery slip away.
Investment decisions in a recovery are tougher involving simultaneously investing in some areas and cutting in others. That means investing where there is less of a clear signal, where opinion is more important and there is no clear direction the way there is when cutting costs. The lack of a clear-cut direction places even greater stress on your governance processes and priority setting. If your governance was weak in cost cutting then it will falter in the recovery.
Surely there are some general guidelines for investing in IT in a recovery? Don’t call me Shirley, but in general there is one direction – investments that raise productivity. Making the enterprise more productive benefits performance regardless the change in economic direction. It also represents a subtle but important shift away from cost cutting efficiencies that form the second transition we see in 2010 that impacts the CIO and IT.
It is also the subject of the next blog post.