Preparing for the Economic Downturn
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Jerry Batt twice had the misfortune to find himself in exactly the wrong place at the wrong time. Batt was CIO at Sprint PCS when the 2001 dot-com crash devastated the wireless carrier world. Now, Batt is once again at economic ground zero, as CIO for the $14.3 billion-a-year builder Pulte Homes just when the subprime mortgage crisis--and the resultant drying up of the real estate market--is a massive contributor to the nation's fiscal doldrums.
"When you're in the industry that tanks the hardest, the mood swings are pretty severe," Batt told CIO Insight. "In both cases, I went from growing at 30 percent a year to cutting at the same rate."Batt learned a valuable lesson from the experience: Always be prepared for the worst. As a result, he keeps cuts of 15 percent to 20 percent in mind so he can make quick decisions when a downturn comes. These cuts are typically in areas such as vendor contracts or other planned IT investments. The main objective is to avoid having to lay off people, which is the typical knee-jerk reaction of the unprepared. He's also ready to explain the expected impact of those cuts to the company's business leaders.
Indeed, as the U.S. economy slows and a recession threatens, CIOs are bracing themselves to make tough decisions. CIO Insight interviewed a number of CIOs who weathered the last recession to see what lessons they learned and how they'd apply those lessons today.
We discovered that, with a little preparation and by resisting the urge to overreact, their strategies can not only be simplified, but converted into opportunities once the economic tide turns again. It's more than just cutting costs--it's developing new ways of thinking about IT and the IT organization, even if that means spending more up front to save more on the back end.
Sometimes a weakening economy provides the catalyst, the motivation to act decisively. "Economic pressure provides a great opportunity to focus on transforming IT," says Frank Modruson, CIO of $19.7 billion-a-year consultancy Accenture.
A 20-year Accenture veteran, Modruson took over as the business advisory consultant's CIO in the midst of the last recession, and that experience spurred him to take decisive action when the economy began to rebound. Most significantly, because IT plays such an important role in how the company services its customers, he focused on driving down his organization's operating budget so it could continue to invest in modernizing and streamlining its technology portfolio.
For example, he had the IT staff replace 450 financial applications used by Accenture offices around the world with a single instance of SAP's enterprise resource planning (ERP) suite. While the purchase of the new software required a substantial upfront investment, the payoff is a bundle of savings on maintenance, integration and a host of other complexity-related costs tied to the previous approach. Today, the company's IT spend is one-half of what it was in 2001, and the ERP consolidation has contributed to that savings.