IT will also be heavily engaged in preparing for the increase in corporate governance and regulatory demands - everything from IT managers and chief information officers should be putting down their hatchets and picking up their trumpets in 2004. Having proved they can cut costs to the bone - and still run at least a skeleton service - they now need to find the value in what they do and publicise it across the organisation, creating a climate of goodwill that will extend from desktop users to the occupants of the boardroom. That is one of five key business themes we think will be crucial for IT in 2005.
Sarbanes-Oxley and Basel 2 to individual requests under Data Protection and Freedom of Information legislation.
We are witnessing a revival of interest in business process re-engineering, looking for greater cost and time efficiencies, and closer alignment of IT and business. Finally, there are two issues that are more closely related than some companies have thought: how to devise an outsourcing strategy that works for the long-term health of your organisation; and how to make the best of the people you have and any you might recruit.
Despite reported sightings of green shoots, the prospects remain uncertain for the next few months. Julian Hewett, chief analyst at Ovum, says staffing agencies are normally an indicator of trends. He sees no evidence they are recovering, which leads Ovum to question talk of an upturn. "We can see the upturn in bottom lines, which comes from taking out cost, but not in top lines," Hewett says.
The consensus, however, is that staff cuts have gone as far as they can go. "Headcounts cannot be cut further without an impact on service delivery," says Meta Group vice-president Rakesh Kumar. He sees organisations adopting a clinical approach to recruitment, taking advantage of the pool of skills on the market as a result of redundancies and of contractors trying to return to full-time work. They are "getting rid of the dead wood" and being extremely selective about the skills of the people they take on, Kumar says. "Staffing will not be a problem until 2005 when, to my thinking, we will see the upturn."
Roger Rawlinson, head of consultancy at technology assurance provider NCC Group, says before taking on staff, employers should make sure there is a long-term strategic justification. "If their expertise is only going to be needed for six months, you are better off looking for a contractor or outsourcing," he says.
Max Nathan, senior researcher at the Work Foundation, says organisations need to think carefully about whether and what they outsource. "There has not been as much emphasis as we would like on the more subtle aspects of technical and back-office support," he says. "It is easy to take the function out, but you also need some expert knowledge of the organisation on the ground. Without such precautions, outsourcing saves money in the short term but may incur costs in terms of frustration and complexity."
Low-cost, high-turnover, high-commoditisation models of work do not tend to deliver in the long term, Nathan says. "Staff who are not happy and engaged in their work have a lower performance, so you will get less out of your people."
Rather than just looking at the numbers, corporate planners need a good idea of how the functions they are going to outsource fit into the organisation, and what will be lost if they are taken out. "Outsourcing IT removes an important feedback loop between staff and management," says Nathan. "Over time, staff will increasingly avoid using external IT services and concentrate on internally generated, informal solutions which leave management with an increasingly imperfect picture of what is happening."
However, the numbers are seductive, particularly when it comes to offshore outsourcing, which is driven by the cost advantage of Indian call-centre workers over their UK counterparts. With management, travel and telecoms costs, plus loss of productivity during the transfer, this translates into a 20% to 40% saving. Ovum estimates that between 20,000 and 25,000 UK IT jobs will be lost to overseas outsourcing over the next few years.
However, companies considering outsourcing should not expect it to be plain sailing all the way. "It would not surprise me if, in three years time, they start trying to hire people for the boom in business process insourcing," says Anthony Smyth, a partner in Ernst & Young's Information Security practice.
Steve Prentice, chief of research at Gartner, predicts that outsourcing in Europe will encounter legislative challenges. Several countries joining the European Union at the beginning of 2004 see outsourcing as a big opportunity. "We may see jobs outsourced to Poland and Latvia, rather than India," says Prentice.
But complications will arise because of the political traditions of many European countries and the strong employee rights legislation that goes with it. Prentice says that even in the US there is a rise in legislation to prevent the outsourcing of particular skills to protect the local labour market.
Outsourcing also raises regulatory issues. The UK's Financial Services Authority considers that a firm's management is accountable for the adequacy of its systems and the activities it outsources. "It is management's responsibility to identify the risk, whether it is material or not, and ensure it is managed appropriately," it says.
If you want to get rid of the overheads of keeping your in-house workforce, why not adopt flexible working instead? Karin Breu, senior researcher at the Cranfield School of Management, says employees working flexibly benefit from a better work/life balance and are able to work when and where they like. This improves their motivation, and employers can save money by reducing office space.
It will not work for every role, or for every individual, and Breu says it will need a lot of co-operation between IT, human resources and line managers. It also needs a change in management mindset, from supervising people according to the hours they work, to judging them by the results they produce.
Corporate governance and regulations
Strict new codes on corporate governance have been brought in following the scandals at Worldcom, Tyco and Enron. Alan Pelz-Sharpe, vice-president for software and services at Ovum, says suppliers of storage, datawarehousing, analytics and document management have rushed out products which they claim will help firms to become compliant with the US Sarbanes-Oxley legislation. Many are expecting a boom on the scale of Y2K, but Pelz-Sharpe says it has not happened yet.
"In many cases these suppliers can help. Secure and tamper-proof information systems, control, retention and reporting products all make sense. Yet the message does not appear to be getting through to the person who matters: the chief financial officer," he says.
From the head of finance's point of view, the first hurdle in meeting regulations such as Sarbanes-Oxley is better financial reporting, says Pelz-Sharpe. "Any extra expenditure is likely to be spent on accounting and auditing costs, not on technology. The bigger issues of more general corporate transparency, and the management of risk, is the second or third hurdle they will attempt to jump."
Prentice warns of the need to invest in storage and an access infrastructure that will enable businesses to respond to the regulator's requests for information. He says storage manufacturers are already turning hard discs into write once, read many times devices to enable them to keep records unaltered.
Business process re-engineering
One problem in meeting regulator's requests is the lack of understanding of business processes."How many IT departments can provide a system that seamlessly pulls together all the parts of a complex negotiation, in context, in quick or real time?" Pelz-Sharpe asks. "Does everybody know just how difficult that would be? That the information may well be there somewhere, but that no-one has the slightest idea where to start to look?"
Many of these processes were computerised in the 1960s, 1970s and 1980s, and have survived unchanged. "Is this still the logical way to do them, or could we add value and cut time and cost?" says Prentice. "Most organisations do not understand their business processes. They need to start recruiting or finding people in their organisation who can identify, map and model them. In the short term, investments in processes are going to give a better return than investments in technology."
Marketing the value of IT
Technology investments will need to show a measurable return, and it will not be enough for IT function to quietly beaver away while everybody takes it for granted. "The role of CIOs next year is going to be as a marketeer, where for the past two years they have been hatchet men," says Kumar. "In 2004, they are going to be measured by how slick they are at advocating the value of what their organisation delivers, and how they use their tools, metrics and communications channels."
Business ideas for 2004
It promises considerable savings but have you fully explored the management implications?
Cut your staff overheads without outsourcing their jobs - and boost motivation
Coping with regulation and corporate governance
Invest in the storage and retrieval infrastructures you wll need to answer questions from regulators, customers and employees
Business process re-engineering
Have we simply automated Victorian ways of doing business? Time to look again
Marketing the value of IT
If you are doing it well, tell the world.