Planning for a Tough Year
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John Baschab, managing director of the staffing firm Technisource Management Services and co-author of The Executive's Guide to Information Technology and The Professional Services Firm Bible, sees a tough year ahead for many IT shops and vendors. But he also sees opportunities. "Unless you're giving up completely, you have to plan for the future," he says. Baschab spoke about coping during a recession with CIO Insight's Online Managing Editor Edward Cone. This is a lightly edited version of their conversation.
Cio Insight: What should CIOs be doing now?
John Baschab: Seizing this opportunity to make changes: Some you can make only at times like this; some you've been deferring during a period of growth.
One area is consolidation. There's a lot of duplicative stuff in your company. We've just come out of a period of growth, when speed was of the essence, and speed leads to sprawl. Maybe you've got multiple telephony platforms, operating systems, data centers, vendors or locations--even staffers. Consolidation of multiples reduces cost and gives you a platform that is easier to scale up as you grow.
Another change to seize is outsourcing. It's time to evaluate things like outsourcing data centers, or specific functions in IT that lend themselves to scale economics, like the help desk. If you're going through a bunch of pain anyway, you might as well do this now. It also gives you a volume knob to turn: You can turn it down now and turn it back up when you need it.
How do you convince management to invest during a crunch?
Baschab: Look at labor/capital trade-offs. Look at things that improve productivity. People try to do less of the same thing in hard times. That's fine, but there's also an opportunity to do more of something different.
A lot of companies are cash-rich. If you've got cash, now's the time to make deals on hardware and software. It's a great time to be a buyer. If you can make a capital investment of $1 million to reduce operating expenses by $400,000 a year, it's worth doing. It could be automation projects that reduce administrative or support costs.
The job of the CIO is to find where the paybacks are. It could be time to dust off old projects. In growth mode, projects with good ROI made sense, but they fell behind compliance or mandatory projects. Now, a lot of the latter are out of the way, and identifying hidden gems is good practice.
At the same time, there will be pressure to cut costs.
Baschab: I'd suggest that any CIO preemptively take to the budget committee ways to reduce operating expenses, along with the implications of those reductions. Generally, the steering committee isn't going to take you up on all of it, but they are going to ask you to do it anyway, and this way you look like a senior executive and a peer, rather than someone who just responds to requests. You bring in eight suggestions, they pick three and you've made a real contribution.
Maybe it's time to ratchet back your service-level agreements a little bit, in order to reduce operating expenses. Those last few nines are where most of the cost is. This has to be done in concert with the business; you can't just drop it on them.
What are the pitfalls in the marketplace?
Baschab: You'll see marginal vendors--the ones that were just hanging on and may lack capitalization or profitability--shake out. As CIO, you should make sure you don't have mission-critical stuff reliant on those you think are weak. Evaluate vendors carefully, and be careful about things like prepaid maintenance plans.
How does a recession change IT's focus?
Baschab: It favors people with operations and infrastructure background, rather than applications background. That's the direction for IT in the future. At the end of the first wave of ERP, we were at the stage where custom development and interesting add-ons were the thing. You'll see people shrinking back from that. Instead, you'll see more of a focus on things that are productivity-oriented.
That means IT professionals should look to migrate to the operations infrastructure side. The hard part is that there's a relatively high wall between the applications side and operations infrastructure.
One thing that never gets old is management: the ability to make the kind of decisions we've talked about. That's a rare commodity in IT. Being a good businessperson never goes out of style.