Meeting the Challenge

Meeting the Challenge
Strong Economy, High Threat Level

U.S. and alliance efforts to root out terrorist organizations and their supporters abroad, and to reassure citizens at home that the threat has subsided have not yet succeeded. Additional incidents occur regularly, although the most dramatic are abroad and focused on the Middle East situation or major international assets, both government and commercial in Islamic regions. However, a swiftly recovering domestic economy is lifting spirits nationwide and to some extent worldwide as US appetite for imports reappears.

Investment in non-productive assets (for security and business continuity capability) have boosted many sectors, and have proven to be the engine for a surprising resurgence in productivity growth as innovation creates ways to get around otherwise productivity sapping processes.

Attention shifts from travel and threats against the public, that are largely controlled in the US and Europe, to threats against major areas of infrastructure (power generation, ports, communications centers and information flows). After an initial jump, energy prices have stabilized about 10% higher as threats to supply from OPEC are offset by higher domestic production and additional capacity in Russia and Central Asia coming online ahead of schedule

Global trade resumes growth at about 4% annually, but there have been significant shifts in trading blocks as the Alliance members gain and the problem areas lose out on investment and trade.

What are the main economic and social consequences?

Consumer confidence returns and with it broad economic activity restarts. There are no major corporate failures, although some sectors shed over-capacity and there is considerable consequential restructuring. Travel, entertainment and leisure industries realign themselves with the new world order, although all are now 20%-25% smaller than in 2000. The resurgence in confidence is reflected in a resurgence of equity investment, especially in sectors where earnings growth is quick to reappear. Unemployment stays around 6% and some skills are once again becoming difficult to find.

Capital flows improves as regional (if not global) credit risk is seen to be under control. Interest rates stay low, although they are expected to begin to rise in the near term if signs of inflation recur. The Dow climbs back to 10,000 and the Nasdaq to 2700. A mini-bubble is recreated in biotech and some technology stocks that are active in public health and security-related areas. The expectation of a prolonged and somewhat conventional anti-terrorist campaign keeps defense stocks up, but not by more than the market as a whole. Environmental concerns are steadily over-ridden in resource exploration and transport infrastructure.

In response to threats of bio-terrorism, the US government sponsors a major rebuilding of the US public health infrastructure, on a par with the investment in transportation infrastructure made in the 1950s. Other leading economies follow suit. There are several high profile court cases on issues of civil liberty and privacy, but the US Supreme Court sides with the government and an EU-like data protection bill covering cross border data flows is passed.

What would be the resulting business behaviors?

Business investment centers on creating a safe workplace, on robust business continuity capabilities and on continuing productivity enhancements. Work from home and telecommuting arrangements proliferate. There is also a major new demand to be in compliance with anti-terrorist operational measures that target money flows and other suspicious behavior patterns and to comply with or gain exemption from the new dataflow bill.

Businesses resume hiring, but a larger proportion of resources are contractors or supplied via outsourcers to maintain flexibility in volatile grow/shrink scenarios.

Businesses seek to build more comprehensive customer databases in order to run targeted customer service programs, broad-based loyalty and reward programs and to comply with security and notification rules. Such databases are increasingly linked (both overtly and covertly) to create comprehensive consumer profiles.

Profile-linked products and services become hot items with mixed consumer reaction to the first generation attempts to balance convenience with privacy and intrusion issues. Brands are rebuilt to add an prominent element of "trust" to both the product and the corporation behind it.

What impacts will this have on the IT organization?

Corporations are moving forward on a variety of technology fronts, the most public of which is the ongoing effort to increase security and reliability of infrastructure, reassess business continuity plans and reorganize accordingly. Behind the scenes, however, large, complex inter-corporate and corporate-to-government database linkage projects are also common.

These projects spawn a new generation of inter-corporate infrastructure and information architectures and the utilities that operate and maintain them. Learning to work with these new capability providers is an evolving challenge for the IT organization.

IT hiring is strong, as IT departments respond to business-unit plans to resurrect and move forward on plans to harness such technologies as CRM, PKI, KM and XML to their longer-term strategic goals. As the focus shifts to inter-corporate collaboration, IT departments aggressively outsource large-scale application maintenance and data remediation projects.

Some skill sets (both legacy and emerging) are again in short supply and the services industry restructures rapidly in response. Off shore efforts are generally being replaced by near shore and on shore providers as global risk factors are reevaluated.

Technologies requiring tighter bonds with business partners, such as supply-chain management, are moving more slowly on a global scale, as companies remain reluctant to extend themselves much further beyond their own regional blocs than they already are, but are accelerating in local and regional efforts to build strong and secure economic networks that can resist terrorist interruption.

New rules for global data exchange between the major trading blocks are emerging slowly as governments and businesses struggle to reconcile differing points of view.

What will be the smartest IT response?

Clean house. Simplify where possible and outsource where not. Learn the new rules of inter-corporate life and, even more critical, of comprehensive compliance with the new reporting standards (and you thought HIPPA was tough).

Refocus key resources on the new critical areas of data quality, security, collaboration and customer service. Identify key employees and work on ways to keep them happy as hiring pressure from outsourcers grows.

While the good times continue, avoid getting lazy. Invest in continuing productivity, speed and agility capabilities, but try to keep the cost of fixed assets as low as possible.

Click on a response above for further analysis of each scenario.

This article was originally published on 11-01-2001
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