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10/3/2008
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How CIOs Are Setting IT Strategy Amid Economic Uncertainty

They're watching costs closely, but demand for IT's also rising.


One of many questions -- Photo by AP Photo/Mary Altaffer

One of many questions

Photo by AP Photo/Mary Altaffer
As H.B. Fuller CIO Steven John absorbed last week's tumultuous economic events, it "made me go down the hall to talk to the CFO."

It's a simple and essential action item for CIOs today--personally take fresh stock of the company's financial situation, to make sure IT spending and projects have the same priority they did even a few months ago. Those who don't risk being out of touch with fast-changing economic realities.

Last week heightened the sense of economic uncertainty, as U.S. stock markets plunged, then rallied, then teetered in doubt waiting for Congress to act on a bailout plan, action unresolved as InformationWeek went to press. While the market grabbed attention, the underlying concern is that a global economic slowdown, fueled by a credit crunch, could cut companies' revenue.

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Caution is in the air. H.B. Fuller, which makes adhesives, is coming off a strong quarter, so the financial turmoil creates a "what if" concern. But the company's approach is one heard a lot lately: It's not freezing IT projects, but it's less tolerant of risk. "The bar goes a little higher," John says.

Of more than 600 business technology execs who responded to our survey in July, 40% said they had decreased their IT spending that quarter relative to their 2008 budgets, and a more recent Forrester Research survey reveals similar belt-tightening. SAS Institute CEO Jim Goodnight, the day after meeting with a big Wall Street financial customer last week, said even there he sees no panic. At least he expects the customer to follow through on its million-dollar-plus contract with SAS. As for the Wachovia business SAS recently secured, before its government-assisted Citibank buyout bid and Wells Fargo's counteroffer: That's a whole 'nother story.

As CIO of Daimler Financial Services Americas, the lending arm of Mercedes-Benz and Daimler trucks, Jan Brecht's feeling the effects of tight credit and slower consumer spending. In discussing IT strategy with fellow executives, Brecht uses a triangle with these imperatives at the points: Optimize IT, areas to cut; Build IT, projects to spend more on to give the company an edge; and Empower IT, training programs he's staunchly defending to build skills and keep up IT morale.

An example of Build IT is a system Daimler Financial is implementing to do automated analysis of vehicles coming off lease and route them to the most profitable channel, such as dealer resale, lease extensions, or auctions. Daimler Financial's in "reprioritization more than pure cost-cutting mode," Brecht says. "IT is probably more in demand than ever."

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IT organizations are moving into "Mother may I?" mode, says Geoff Endris, CTO of insurance company Capital Assurance. "You have it budgeted, but you have to ask permission to spend it," he explains. Endris isn't cutting spending, but he's preparing his IT team for that possibility. They're reviewing discretionary spending--consulting, training, new software, research. He realizes a hiring freeze could be on the horizon, yet he resists the temptation to hire quickly for several high-skill jobs he's had trouble filling. Better to ride out a short-term shortage than live with a hiring mistake. "I'd rather have a three-month problem than a two-year problem," he says.

Endris doesn't expect the high-skill talent market to improve, even if a slowdown leads to layoffs. If that happens, the best people will just become more cautious and less likely to switch jobs, he says.

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