Getting Back to Basics

As a CIO, your primary objectives are to maximize the business value of your company’s IT spending and–equally importantly–communicate that value effectively to your business partners. This remains true in good times and bad. While this goal should not vary with changes in economic conditions, the decisions you make and the tactics you choose to achieve the goal must be influenced by the state of the market.

During an economic downturn, it is crucial for CIOs to communicate IT’s value in clear business terms. That’s your best defense against mandated–and often hasty–cuts in IT spending that could hurt business performance. Furthermore, if you can identify and effectively communicate ways in which IT can enable cost reductions in other areas, such as SG&A, you may be able to increase the value of IT at a time when the business needs it most.

This recession has executives rushing to cut costs across the board, which is certainly understandable. It is reasonable to expect every part of a business to strive to eliminate waste and run as efficiently as possible. But slashing IT indiscriminately can have unintended negative consequences, both now and when the market rebounds.

A key part of your role is to make technology choices that reflect the tenor of the times. Strong market conditions will generally put a company’s IT focus squarely on investments that support profitable growth with a bias toward long-term strategic competitiveness, such as new software applications that support enhanced business capabilities. Tough economic times tend to put emphasis on initiatives that reduce costs without affecting business, such as software as a service (SaaS) versus in-house maintenance and support.

There are four primary components of IT-enabled business value:

1. Increasing/preserving/accelerating revenue

2. Decreasing/avoiding/delaying cost

3. Reducing business risk

4. Enhancing business capabilities (leading ultimately to achieving one or more of the above three).

IT requires “business-centric” metrics (to effectively communicate the value of its operating activities and capital projects with respect to these business value components) as a supplement to traditional “technology-centric” metrics (such as the number of transactions processed or the mean time between system failures). Maintaining a clear line of sight between IT spending and its business value can help reinforce IT’s position as an informed and trusted business partner.

Be prepared to respond to mandates for “wholesale” cuts in IT–the “costs of cost control” must be considered in concert with the business value IT brings. To defend your IT spending, you should be able to ask business managers the following $64,000 question: “What IT-supported business capabilities are you prepared to do without?” Then you’ll have to tell them, “Here’s what you’ll have to do without if we make these cuts.”

If your IT spending is clearly aligned with business objectives, making cuts will not be a simple matter of “trimming the fat,” which may very well be the underlying assumption of business partners.

In a downturn, while you might shift toward initiatives that create near-term economic value, you will not want to do so at the exclusion of support for strategic investment. By the same token, in boom times, you don’t want to focus exclusively on growth and expansion without consideration for initiatives that support sensible reductions in IT costs.

A CIO must engage in this delicate balancing act while the economic pendulum swings with the times: It’s a feat worthy of an accomplished acrobat. Your mission is to provide the IT capabilities required to support the business in boom times or bust; do so in a cost-effective manner irrespective of the economy; and rationally defend your budget against the occasional well-intentioned assaults of your business partners.

Lessons learned from other downturns clearly demonstrate that companies that continue to make prudent, balanced investments in IT will weather the market challenges and be better positioned to compete effectively when the economy recovers.

Peter Blatman is a principal with Deloitte Consulting.

Back to main story: Communicating IT’s Value

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