Four CIO challenges posed by the Euro crisis

Analysts point out four challenges for CIOs that the Euro crisis throws up. CIOs need to address these challenges as it concerns survival

With an economic downslide looming large on all businesses operating in the eurozone, CIO challenges now include ensuring the survival of enterprises, according to research firm Gartner. The challenge for CIOs involves safeguarding their enterprises from the risks of government/ bank default, euro break-up, counterparty bankruptcy and employee/ customer distress.

David Furlonger, Vice-President and Gartner Fellow, says, “Uniquely positioned within their enterprises, 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. 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 … true value of IT."

Similarly, Andrea Di Maio, Vice-President and distinguished analyst at Gartner, says, "Unlike recent economic difficulties, today's crisis has the potential to totally undermine the eurozone, the whole EU and beyond. Spurred on by the pervasiveness of the Internet, the crisis negatively affects every enterprise or individual doing business in or with the region. The CIO's top responsibility is to guarantee business continuity."

Gartner analysts state that the euro crisis raises four broad CIO challenges. They include:

CIO challenge 1: Market volatility

Most enterprises 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," Di Maio said. "Change management capabilities will be critical. The foundation to achieve effective change management will demand information, analytics, HR flexibility and a more decentralized command-and-control management structure."

CIO challenge 2: Capital costs

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 organizations. 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," Furlonger said. "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 backups."

CIO challenge 3: Human capital management

Hundreds of thousands 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," Di Maio said. "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'."

CIO challenge 4: Risk management

The capital markets (and many corporations) believe that the risk of government and counterparty 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, enterprises 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," Furlonger said. "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?"

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