Business decision-makers often cut IT budgets in times
of economic slowdown. But they risk reducing business opportunities
in the future.
Harvard Management, which manages the assets of Harvard
University,
has published a list of common mistakes businesses make during a
recession.
Companies often cut
IT budgets as a direct result of three common errors:
- Delaying decisions that will improve the long-term health of
the company
- Assuming the smart way to grow is always cautiously and
incrementally
- Focusing on broadening the customer base
Delaying decisions
IT projects are usually the first to go, or be put on hold,
when companies cut budgets. But Harvard Management says this can be
a mistake, as businesses still need to invest in the future.
Justin Speake, CEO at analyst firm Bloor Research, says that
during an economic slowdown businesses should re-examine their
decisions, but warns against cutting projects as a knee-jerk
reaction. If there was justification for a project originally, it
probably still applies, he says.
"They should reaffirm that their return on investment process is
effective. If they confirm it was right, they should not cancel a
project," Speake says.
High street bank HSBC's decision to step up investment in a
project to standardise systems globally is an example of this
theory in practice.
The bank started a project, known as
One HSBC, before the financial services turmoil. But rather
than cut its investment in the IT project, it has increased how
much it spends on it each year. In 2007, the bank spent about
$650,000 on the project, and expects to invest a further $1.2bn
next year.
Emerging gently from
recession
Harvard Management believes it is wrong to assume that the best
way to start growing again is always cautiously.
Businesses can use technology to grow their businesses quickly
when things pick up. The use of web 2.0 technology in financial
services is a case in point. Banks realise that web 2.0 is a good
way to reach the new customers of the future, but many believe they
cannot justify investing in the technology during the downturn.
Bob McDowall, analyst at Towergroup, says this may be a mistake.
"You should not just stop all discretionary spending but assess the
risks and benefits of it."
He says web 2.0 is a good example because the technology is
already available and people are using it. "It is a case of
assessing how it can be nimbly and quickly deployed." Companies
that invest in it now will be at an advantage when the recovery
comes, he says.
Analyst company Celent warns that
banks will face competition from rival financial service
providers, including retailers, phone companies and pre-paid
card suppliers. They are likely to exploit web 2.0 applications to
deliver new services.
Focus on broadening your customer
base
Harvard Management says businesses should cherish the customers
that stayed with them through a slump because they will probably be
its best customers when things pick up.
Investing in technology to improve customer services can create
greater loyalty in the customer base. Analytical software is one
option that could help businesses understand their customers and
offer them better services.
An important part of HSBC's One HSBC project, for example, is
the fact that it made it easier for its customers to work with the
bank.
Outsourcing to avoid recessionary
mistakes
Outsourcing is another trend that increases when times are hard.
Companies often base the decision to outsource on cost-cutting. It
can save money in areas such as maintenance and support, while
freeing up budget for more strategic IT investments.
Duncan Aitchinson, head of Europe at sourcing consultancy TPI,
says businesses can use outsourcing to avoid the pitfalls
highlighted by Harvard.
"When negotiating an outsourcing contract businesses should
think about more than just cost; take a longer-term view and
position themselves for the upturn," he says.
Strategic investments in IT can help businesses survive periods
of recession and position themselves for the upturn. But if they
are to avoid the mistakes described by Harvard Management, CIOs
have to develop strong business plans which analyse the risks and
benefits of each project. They must also revisit those business
plans that were written before the economy slowed to ensure they
are still relevant.
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