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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CIOs know a lot about sequestration

by Mark P. McDonald  |  March 1, 2013  |  1 Comment

Today starts sequestration; the term for the ‘draconian’ budget cuts in the U.S.  The 6% across the board cuts to social programs and 8% cut for defense programs has been the subject of discussion, hyperbole, blame storming on all sides.  CIOs are familiar with the idea of having to manage in an environment of broad based, across the board and arbitrary budget cuts after a decade of devaluation.

CIOs have had the debate around budget cuts and the budgeting process ever since 2008/09 in response to the global financial crisis.  At that time the 2009 Gartner CIO Survey recorded a global average CIO IT budget decline of 8.1%, a decline that CIOs still have not recovered from in 2013.

This is not a political discussion, but the parallels between the discussion around sequestration and the discussions about IT budgets over the past few years are striking.

While we are all less than amused about the situation and the deadlock it embodies, its important to remember that it takes two sides to reach an impasse. The Congress and Administration are playing interesting roles in the sequestration interesting discussion.  The Republican majority in Congress plays the role of the CFO pointing out the unsustainability of spending while the Administration is acting like a CIO highlighting the risks, the things that will not get done and requesting a combination of cuts and revenue.  It is a conversation many CFO and CIOs remember.  While the U.S. Federal government is not exactly the same as a business, there are important things the government can learn from the private sector in this regard.

Over the last decade the discussion between the CFO and CIO was around ‘doing more with less’ under the idea that its possible to cut IT costs without compromising IT services, quality or security.  This argument worked in many organizations as CIOs restructured their costs through a combination of cost cutting, labor outsourcing, contract renegotiation and delaying maintenance and lowering support level.  Each dollar the CIO ‘found’ or saved through restructuring seemed to prove the CFO right, at least in the short term.

The problem with a ‘more with less’ approach is that it leads to a false sense of sustainability.  Financial management does not equal operational management as leaders make short-term budget decisions that determine and lock in long term cost structures.   One could argue that much of the U.S. government has been operating under a more with less approach for more than a decade and therefore continuing past practices will not lead to a different solution.   IT organizations are feeling this as many have given up their small project muscle during the lean years only to be caught short as we come into the digital decade.

Leading organizations have realized that rather than trying to steer the bus via the gas tank, giving it only so much funding-fuel to go only so far is not a solution.  Instead these organizations are concentrating on restructuring and re-imagining the structure of their costs and operations.  Such restructuring allows everyone to take advantage new strategies, technologies and situational realities rather than continuing to bootstrap operations and kick the financial can down the road.  Organizations like FedEx and Intel among others recognized the need to take action and re-establish an operational baseline as the situation changes from one of incremental efficiency (more with less) to institutional effectiveness.

Now I know that the government has commitments that cannot simply be balanced by changing the size of the Federal workforce – the most immediate action cited under sequestration and the source of the ‘sky is falling’ pronouncements on all sides.

Perhaps its time to take a page from the CIO’s playbook and recognize that a sustainable solution requires more than what is happening in Washington.  Draining the oxygen out of the federal budget to force more with less does little to create the capacity and capability to address the challenges we face.  Likewise assuming that revenue is the only problem and therefore everyone, including the wealthiest among us, is willing to pay more to continue the old system leads to less with more.   Such approaches have not worked for IT over the past decade and these approaches do not get better with scale, particularly the scale of the U.S. government.

I am not trying to be political here, there is more than enough credibility and blame about the current situation to cover everyone.  The answers are not simple and that is the real lesson regarding sequestration –

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1 Comment »

Category: budgets CFO CIO     Tags: , , , , ,

1 response so far ↓

  • 1 Mary L. Patry   March 2, 2013 at 6:45 am

    Mark, the analogy is spot on. Uncanny even! The risk is that the similarity will extend into the execution of the reductions. Having found myself challenged with the infamous 10-15 percent reduction (and some times multiple times during a single role tenure) I’ve learned that both a tactical and strategic approach to cost reduction is necessary. The tactical is addressing quick wins such as contract renegotiating, thoughtful maintenance reduction, non-value add tools and systems, and perhaps people. The strategic is sustaining the reductions through changing the way you run the business of IS, prioritizing decision making, rationalizing systems and services, etc… There is no one size fits all. It depends on your current practice against best practices. Also not to be political, I have enough friends who work in the Federal sector to feel very confident that there opportunity to cut without coming close to bone. The challenge will be HOW will they execute the directive.