CIOs must act to protect businesses from Eurozone crisis

CIOs must play a key role in protecting the business from problems emanating from the Eurozone crisis, says Gartner.

CIOs must play a key role in protecting the business from problems emanating from the Eurozone crisis, according to Gartner.

The analyst firm said CIOs are in a good position to protect their businesses from the effects of the Eurozone crisis because they have the best visibility of business and IT. The risks currently being faced by businesses include: government/bank default; Euro break-up, counter-party bankruptcy; and distress among employees and customers.

Gartner has identified the four main challenges that the Eurozone crisis creates for businesses and outlined how the CIO can help.

"Uniquely positioned within their organisations, CIOs are at the fulcrum of business and technology, and they are the only executives with sufficient visibility and potential capability to address the challenges posed by today's Eurozone crisis," said Gartner analyst David Furlonger. 

"Business leaders are crying out for CIOs to demonstrate more effectively the capability of IT and, specifically, to add value to the business. Therefore, this crisis also presents CIOs with an opportunity to make substantial and bold steps to meet CEO demands, and demonstrate the importance and true value of IT," he said.

Challenge 1: Market volatility

Gartner's advice: “Most organisations and their IT departments are burdened with significant numbers of bureaucratic processes and latent decision-making mechanisms. Today's market conditions require business and government executives to radically restructure their business practices.

"Market conditions require CIOs to help develop a working environment that promotes speed, agility and adaptability – without sacrificing accountability. Change management capabilities will be critical. The foundation to achieve effective change management will demand information, analytics, HR [human resources] flexibility and a more decentralised command-and-control management structure."

Challenge 2: Capital costs

Gartner's advice: “The costs of and access to capital across Europe will likely continue to worsen until there is a significant redress in structural imbalances between countries and organisations. Unwillingness or inability to write off debt and restructure public and private sector balance sheets is a substantial barrier to market efficiency. Lines of credit will likely become uncertain or removed, forcing corporations to reduce inventory.

"In this situation, CIOs will face zero-growth budgeting at best, and substantial reductions in both the investment capital and the operational budget made available to run the business at worst. If a market meltdown occurs, then critical resources and supplies may be at risk. CIOs and other executives must develop contingency plans to ensure multiple back-ups."

Challenge 3: Human capital management

Gartner's advice: “Millions of people are out of work in Europe. Formal government austerity packages and informal corporate restrictions on salaries, benefits and working conditions, combined with high costs of living, are stressing workforces. This situation is compounded by retirement funding shortfalls, extensions in the working age and loss of benefits.

"CIOs and business executives face significant HR issues in terms of rewarding and motivating staff, securing funds to hire appropriate new talent, and dealing with the personnel hardships of individuals entering the work environment which impair productivity. They must also plan for retention issues of foreign workers moving to better opportunities or the removal of non-EU work permits and visas in response to political backlash from rapidly rising unemployment, resulting in a 'brain drain'."

Challenge 4: Risk management

Gartner's advice: “The capital markets (and many corporations) believe that the risk of government and counter-party default is substantial. Receivables management is being stressed, and the likelihood of internal and external fraud rises. From an IT standpoint, operational risk is heightened via issues such as changes in contractual obligations and business continuity. Added to this is the continued increase in regulatory compliance initiatives across industries, which exacerbate the pressure on audit and risk management assessments and workflows.

"Prior to the crisis, organisations were already challenged to identify enterprise-wide risks in a holistic fashion to link those risks to the performance of the business and to manage risk in a time-effective manner. Now, the CIO – and corporate treasurer, head trader, CFO and others – need to ask questions such as, 'Can existing risk models accommodate alternatives to the lack of historical data (in many cases, as much as three years of back data is required) necessary for regression testing/yield curve analysis of hedges, and for stressing asset and liability portfolios in the event of a redenomination in all or part of their asset and liability portfolio?"

Image: Glentamara, via Wikimedia Commons

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