Strategy clinic: How do I emphasise the importance of IT during a downturn?

One can not get away from talk of a slowdown or even recession this year. As a senior IT manager in financial services, what should I emphasise about how IT can support the business through this period?

One can not get away from talk of a slowdown or even recession this year. As a senior IT manager in financial services, what should I emphasise about how IT can support the business through this period? I am used to saying, 'technology is increasingly the business in our sector', but I am wary of what might seem to be the arrogance of that. How should IT temper its case in these difficult economic circumstances?

Demonstrate value
Decisions on IT spending need to be linked to business objectives and priorities. The economic climate influences priorities, but does not automatically mean IT costs are reduced.

You need to determine what the key objectives of the business are. These can cover a wide range of areas such as improving security architecture to reduce risk of fraud improving applications to enable more efficient business or refreshing technology because of ageing legacy systems.

There may be ways of reducing costs by identifying opportunities to consolidate systems. Look at your applications portfolio and identify areas that require high levels of support and management and return low business benefits. Identify options for retiring these systems.

Economic downturns often result in greater focus on getting maximum return from business investments. You need to be proactive here, identifying opportunities for both cost saving and investment.

Understanding what the business is trying to achieve will enable you to interface and influence IT spending by presenting solutions to business problems.

Roger Rawlinson, director of consultancy, NCC Group

Manage your IT department as a business
It is not unusual for IT departments to be one of the first affected in such a situation.

Don't panic! You should manage your IT department as a business. Consider the following points:

 Demonstrate how you create value for the business

 Rationalise costs throughout your department and

 Help the business manage its overall risk.

Research shows leading-edge IT functions make a quantifiable, positive difference in business performance. Create and demonstrate the value you bring to your business by:

 Aligning IT strategy and focus with that of the business and

 Demonstrating business efficiencies and commercial benefits of what IT is doing.

For example, a straight-through-processing (STP) platform will lower transaction processing costs and make processing more efficient, making your business more competitive.

While IT may be challenged to reduce its own costs, there is a growing realisation that the effectiveness of IT can affect a company's overall cost position and strategically increasing IT spending can drive even greater costs out of other parts of the business. For example automating routine, manual processes (e.g. insurance claims processing), will reduce overall business costs. In parallel, assess your cost base and see if there are areas of cost inefficiency or excess which could be pared back.

The potential impact of risk on the enterprise has become more clearly understood by management, particularly in financial services. Circumvention and failure of controls (automated and manual), recently cost Societe General $7 billion. Further, failure to comply with an ever-expanding and increasingly complex regulatory environment can lead to large fines and reputational damage. Demonstrate how IT can help manage the risks (for example, by enforcing segregation of duties) and meet the strict regulatory demands on your business.

Finally, measure your output in business performance terms. Demonstrate the potential return on investment (ROI) of improvements to IT capability or effectiveness that halting decreases in IT operating expense might bring.

Taking this approach will enable you to pick your battles and fight your case more robustly.

Ali Kazmi, director in the technology, security and risk services practice of Ernst & Young in London

Respond quickly to business needs
The key for the IT function in a period of slow down is to ensure that all IT activities and investments provide clear value for money and align quickly to changing business goals and priorities.

Firstly, set up review meetings with the business leaders of each of your key lines of business and understand their revised goals and objectives. Agree with them how IT investments should be prioritised with clear alignment to business key performance indicators. It is important to ensure potential investments follow a clear and consistent stage gate review process to filter out ill-conceived ideas early before they gain too much traction or investment.

Secondly, you should review the adequacy of your IT investment appraisal process. Research undertaken at Cranfield identified that, in the majority of organisations, this process needed significant improvement. Business cases frequently failed to include full cost information, for example the internal resources required to develop and deliver all aspects of IT-enabled change. In other instances the benefits cited were at a very high level and the casual relationships between the IT application and required benefits were not clearly defined. Frequently there was a lack of clarity in responsibility for delivering benefits, for example whether it was with IT or business management. It seemed somewhat idiosyncratic to us that the only reason for investing in IT-enabled change was to deliver some aspect of organisational benefit yet few organisations seriously monitored and tracked the delivery of those benefits.

In summary, in times of slowdown it is critical investments in IT demonstrate real delivery of business value. Our experience suggests that, for many organisations, improving alignment and killing ill-conceived initiatives early can significantly improve the overall return from IT investments. Spend on IT but spend wisely!

Rob Lambert, senior lecturer in information systems at Cranfield School of Management

Highlight purposes of IT, not costs
The financial constraints that come with a gloomy economic climate provide everyone with new levers for making the best strategic decisions about IT. Strategies need constraints. While a strategy sets the ambition and context for decisions, constraints force us to make them.

Rather than make a case for IT, the most supportive role you can offer is to guide everyone through informed decisions about their IT costs, given their constraints and the company's commitments to IT suppliers.

Make sure they are looking at the total costs of IT to the company's profit and loss, and cash, not just the IT department budget. The IT departmental budget is rarely the same as the company's total costs of IT. Sometimes the total costs of IT rise while the IT department budget decreases, and vice-versa.

Focus everyone on what is causing IT costs, not what they pay for. Your non-IT colleagues will struggle to make meaningful decisions if IT costs are broken down into expense categories, such as staff costs and external licences, or by category of technology like infrastructure and applications. Instead, explain the business decisions and activities that cause IT costs in the first place. Highlight the options for keeping costs at a level people can afford, while create maximum value by fully exploiting the capabilities these costs deliver.

If your colleagues have not experienced this approach before, they may discover some uncomfortable messages. In particular, because their bottom-line costs of IT were caused by projects that were completed in past years - in many cases ages ago - the best time to have been constraining those costs was then, not now. So be very careful to manage the political and cultural implications of your tactics. They, more than anything, will be the keys to success.

Chris Potts, corporate IT strategist at Dominic Barrow

Cut costs, not business
The trick in a downturn is to carry on doing all the things which will help you to win and retain clients, which will include faultless execution, whilst doing everything you can to reduce costs. So don't stop doing any of the "good things", but do focus on those which will help in a difficult market, and reduce business costs.

You should revisit all your cost-saving strategies, and look at how you can defer expenditure until the business environment has improved. It is also a good time to revisit your supplier contracts, and to get some good deals.

Ben Booth, global chief technology officer at Ipsos

How much would users lose without IT?
The situation is tricky because the users claim the benefits from the applications you have designed, the packages you have bought or the service on demand facilities you run for them.

The days of major headcount reduction through the application of IT are largely gone. New IT capability is aimed at increasing performance especially in the areas of response time and reliability, so to increase margins. It is probably too late now, but what did you manage to get your users to commit to when the ROI was done at project submission? Certainly for the future, remember users try to commit only to the minimum benefit they can in order to get the project approved - further benefits are then explained as down to them for how well they are using the functionality!

You can try the "consequential loss" approach whereby you ask the users how much they would lose per day if the IT facilities were not available. You can also try to use as much market intelligence as possible to establish how much your competitors attribute to their IT capabilities, although there is, understandably, some reticence about too much trumpet-blowing in today's fiercely competitive environment.

Why should you temper the importance of the job IT is doing? I do not see any arrogance when you say "technology is increasingly the business in our sector". It is! The good IT manager is the one who is always looking for ways IT can enhance their company's performance and is in frequent contact with their users to ensure their emerging needs are responded to quickly and efficiently.

Robin Laidlaw, president of the Computer Weekly 500 Club

How will you deal with an upturn?
You are right to be wary of the claim "technology is increasingly the business in our sector" in these difficult circumstances, particularly if some misinterpret your statement as technology increasing the business. Recent experience has demonstrated once again that business success derives mostly from people. Having said that, it is clear technology has a role to play at many levels. This change in circumstances provides you with an opportunity to engage in a forward-looking debate with senior business colleagues.

One way of encouraging discussion is to categorise where your investment in technology is going today and where it should be directed. For example, technology may be used to increase the range of online products which would directly support your assertion. IT may also be aimed at different areas such as enhancing client relationships, improved profitability analyses, more effective support processes or reducing cost through eliminating inefficiencies.

It is quite possible that the response from the business executives will be that changing allocation of IT costs is fine but you also need to reduce the total expenditure. Given the change in the market, it is worth exploring if you can reduce infrastructure costs without affecting, or with agreed reductions in, service levels. You would of course need to consider how you would deal with an upturn but the current reduced demand may give you increased options at this time. The same types of considerations apply to staffing - both internal and external resources - although the former will need to be carefully reviewed with HR.

The key point is that you are confirming that you are a business manager prepared to adjust to circumstances and make tough decisions, rather than being seen as someone who 'pushes the technology' whatever the economic circumstances.

Sharm Manwani, Henley Business School

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