Comparisons to the Great Depression of the 1930s have become common in recent months as companies continue to slash budgets and downsize workforces in the face of the economic downturn. Against this backdrop, those in the technology sectors — whose operating costs often comprise a large segment of an organization’s annual budget — are in many ways the hardest hit.
Yet, C-suite technology gurus don’t necessarily have history to guide them in meeting current budget, staffing and performance goals. That’s because these leaders are relatively new to the game.
“Early on, computers were honky. They were big, in rooms in the basement, and the people who operated them had very low social needs. You never saw them,” said Wayne Anderson, president and chief IT strategist for consulting firm Anderson Professional Systems Group LLC, which he founded in 2003, and author of Unwrapping the CIO: Demystifying the Chief Information Officer Position. “They did accounting-type stuff, what we call today back-office stuff — they kept the books. That’s really where the key focus was.”
But as technology improved and computers became smaller and faster, IT naturally became an integral part of business.
“I don’t care what size your business is; in some way or another computer technology is ingrained to the point where you can’t survive without [it],” Anderson said.
At the same time, it became increasingly obvious to senior management that the successful application of new technology was necessary to implement a company’s strategic mission and, in turn, help grow the business.
“Once that was realized, the question was, “How do I get [technology experts] at the big table? There’s all kinds of technology coming into play: I want somebody who’s going to be my chief information officer,’” Anderson said.
From there, the CIO, tasked with focusing on business strategy, and the CTO, focused on technology and usually reporting to the CIO, came to be. And while there was a dip in tech spending following the 1990s dot-com crash, most budgets were on track by the time the stock market began its decline last fall.
But now, chief information and technology officers often face two opposing — and equally daunting — tasks.
“Anywhere from 3 to 5 to 7 percent of revenue [is] associated with the IT department,” Anderson said. “They’re asked to pony up at the table like everyone [else], but then they’re looked at as the solution to have their company work in a leaner, meaner environment. That’s really one of the major struggles I’ve seen with CIOs today.”
One cost-cutting measure gaining popularity is outsourcing, a tactic that had in past years grown less attractive due to increased pressure to stem the tide of jobs going overseas. However, in tight times, the bottom line often takes precedence.
“Outsourcing is back again with a vengeance,” said Stephen Andriole, a business technology consultant and professor of business at Villanova University. “Like all the other things, people are thinking, ‘Maybe we can save some money by outsourcing.’ Overseas sort of goes up and down, and it goes in and out of favor. Now it’s back in favor.”
For example, Cisco Systems Inc. quietly reduced its workforce last year by moving more than 100 network management technology jobs from several U.S. sites to contractors in India. And JP Morgan Chase, the second largest bank in the U.S., which recently received a $25 billion government bailout, plans to increase IT outsourcing to India by 25 percent this year.
“And now, if you open up the box a little bit more, Russia, Poland [and] the Philippines are all developing outsourcing,” Anderson said. “It’s still happening; it’s just not as blatant.”
Sending jobs overseas isn’t the only tactic companies are employing to reduce costs and streamline operations. While IT may comprise a large chunk of the budgetary pie in many organizations, workforce costs also represent a significant source of concern for most businesses. The National Federation of Independent Business found in a 2008 survey that health insurance costs ranked as the top worry for small businesses, regardless of geography, number of employees or industry.
Further, a recent Business Roundtable study found health care costs alone put American companies at a significant competitive disadvantage. For every $100 spent on health care in the U.S., economic competitors, including Japan, Germany and the U.K., spend just 63 cents, while rising economic powers Brazil, India and China spend approximately 15 cents.
One way organizations are striving to handle this issue is by using more independent contractors, Andriole said. Companies don’t have to provide benefits — or even a physical office, thanks to mobile technology. Needless to say, the practice has boomed in recent months.
“The technology is such that I can get the talent I need on a temporary basis, and I don’t have to worry about all of those other expenses associated with having a physical employee,” Anderson said. “Then, when I’m done with them, they’re disposable.”
Focus on Efficiency
While most companies’ departments can do nothing to duck the swing of the cost-cutting axe, those in charge of tech sectors find themselves forced to think outside the proverbial box.
“[I told] one of the senior vice presidents I was consulting with last week: ‘The bottom line is, you got too complacent. You had money coming in hand over fist, you were acquiring things left and right, and you had no reason to look at efficiency until now,’” Anderson said.
Tech leaders and executive management alike seem more willing to adopt less traditional techniques aimed at saving cash while delivering increased business success. Companies that never would have considered significant changes such as renting software, renting servers from outside companies or allowing employees to bring their own computers to work and providing IT support to those computers, increasingly are open to significant operating changes.
“I think that companies are being forced out of their comfort zones, and they’re having to try things that they wouldn’t normally try,” Andriole said. “The most interesting thing I’ve seen [in] the past six months is the willingness on the part of CIOs to try alternative delivery models of technology that have the potential to save a lot of money.”
These alternative delivery models, identified by Gartner Inc. in the 2007 special report “Alternative Delivery Models: A Sea of New Opportunities and Threats,” detail ways to acquire, package and deliver IT in nontraditional ways.
“Everybody’s looking under every rock to save money on IT spending. Delivery models that may have taken two to five years to accept are now taking three to six months,” Andriole said. “People are piloting things that they never would have considered. The whole bunch of what the Gartner group calls ‘alternative delivery models’ that never, ever would have been considered at the pace they’re being considered now” are increasingly finding their way to the top of many companies’ to-do lists.
Adoption of New Technology
While necessity is the mother of invention, as the idiom goes, another noteworthy trend seems to be bridging what could best be described as an IT cultural divide.
More traditional business sectors prefer “the older, grey hair or no hair kind of people to be in charge of the technology, which tells you a lot [about] how they deploy technology,” Andriole said. On the other hand, “if [a younger person] comes up, having grown up digital, then they’re really playing around with this social media stuff. It’s almost a culture clash.”
But the ramp-up in necessity means the on-the-fly innovation common at many Web-based, tech-centric organizations, such as the Yahoos and Googles of the world, is finding increased acceptance in the more traditional sectors.
President Barack Obama’s appointment of Vivek Kundra, the first U.S. federal CIO, is in line with this trend. Charged with the oversight of a $71 billion annual budget, the 34-year-old India native likely will employ many of the tactics currently being used across the business board to streamline interagency technology, including the use of open-source software and cloud computing.
For example, as district CTO for Washington, D.C., from late 2007 until his appointment in March, Kundra used mobile and wireless technology in government agencies, including popular social Web sites YouTube, Wikipedia and Twitter, and employed less expensive, more user-friendly consumer technologies in place of more cumbersome business-centric technologies.
During a speech in March at FOSE 2009, the annual government IT trade show, Kundra posed the following question: “In your personal life, as a consumer, if you can go out there and buy technology for one-tenth the cost of what the federal government pays, why is that? What makes the government so special that it can’t embrace some of these consumer technologies?”
In fact, despite the dire situation many organizations find themselves in, there may be a proverbial silver lining among the cost-cutting and restructuring as emerging technologies and new delivery models are adopted industry-wide.
“What the crisis is doing is it’s accelerating things,” Andriole said. “Where normally the technology adoption process is very slow, [the crisis is] forcing people to move a lot faster.”
Staff and Service Concerns
Another challenge facing CIOs and CTOs is ensuring the business has the right blend of talent — “making sure you have the right people on the bus,” as Anderson put it.
“You may need to get rid of some of your people for whatever reasons, but if you really understand the business strategy, and truly understand the technology needed to implement that strategy, you need to have the exact people to implement that strategy,” he said.
Cutting staff and leaving those with the right skill set to achieve the strategic end goal is not exactly popular. But it may allow those left on the roster to prove themselves in ways they may not have had the opportunity to before.
“Some of what this environment has also done is cause a number of companies that may not be hit as hard as, say, some of the banks, to take a look and ask not, ‘Am I doing the right things?’ but, ‘Am I doing them right?’” Anderson said. “You’re going to have more people start looking at Six Sigma people, or project managers, to ensure they’re doing things as efficiently as they can.”
Andriole added that it’s not just staff that’s getting reassessed; it’s service levels, too.
“I think what you’re going to see is a reduction of what an acceptable service level is inside a company,” he said. “Not to say we’ve been gold-plating things, but we’ve enjoyed service levels that are really nice. The larger question is, ‘What is the appropriate service level when you’re in an economic crisis?’ This is a very trying time; everything’s on the table. That’s what I’m hearing from the CIOs I work with. There are no sacred cows.”
Erica S. Brath is a freelance writer and editor based in Philadelphia. She writes regularly for local publications such as the Philadelphia Inquirer and Philadelphia Weekly, as well as a variety of national and industry-specific magazines.
She can be reached at editor (at) certmag (dot) com.