22 Oct CIOs setting priorities in challenging economic times
Madison, Wis. – If you think the nation’s financial crisis hit the 2008 election like a tsunami, what about information technology budgets?
Chief information officers were either wrapping up or in the process of developing 2009 IT budgets when it became clear the slowing economy would be unable to avoid a recession. Even those companies that still had ambitious IT plans for 2009 now have to think about scaling them back.
Whether the IT budget was robust or flat, there is ample guesswork involved. “As recently as 30 days ago, it was clear that we would be okay, but in the last 30 days there has been an upside down impact to everything we knew before,” said David Cagigal, chief information technology officer for Alliant Energy Corp. of Madison. “Can we predict a prolonged outage of this magnitude, or will it be short term? We don’t have a crystal ball.”
For some thought leadership on how CIOs are responding, WTN spoke to Thomas Czajkowski, vice president and chief information officer for Plexus Corp., Neehah; and Rick Roy, who has returned to the position of CIO at CUNA Mutual Group, Madison; and Cagigal. We also interviewed Dr. Kishore Swaminathan, chief scientist for Accenture and a keynote speaker at the recent E-Business Best Practices & Emerging Technologies Conference in Madison.
Cagigal said the best-case scenario will be a flat budget in 2009, but the situation is fluid based on revenue projections. “”If the revenue comes down, then the expenses need to come down,” he said, “and that may have to be addressed in the next 30 days.”
The situation is compounded due to the flooding that hit Alliant’s Cedar Rapids, Iowa facility earlier this year, and the Iowa ice storms that hit in 2007. The IT department gained considerable credibility for its response to the flooding crisis, but the weather disasters still are taxing the company’s resources.
Cagigal summed it up this way. “We’ve had a couple of catastrophes in `08 and `07,” he noted. “One might say that we have two data points, and what does ’09 and ’10 look like for us? Layer that on top of the economic woes of the country.”
In recent years, Alliant Energy has reconsidered its investment in non-utility ventures, tackled legacy modernization, and advanced data replication between its Cedar Rapids and Madison facilities. Mindful of how younger workers use technology, Cagigal would like to explore social computing in the enterprise, but large-scale moves in new directions are unlikely.
Cagigal does not envision a scenario that would result in a rate-of-inflation increase for the IT budget, in part because during the past four years, IT has eaten salary increases and vendor inflation and held annual budgets flat. That does not mean nothing has or can be done from an IT standpoint to drive the business.
“We’ve done some very favorable things for the business,” Cagigal said. “However, it has made for some very tough priority-setting sessions. We’ve had to wrestle with that with our business unit leaders to confirm what is really important, so we haven’t done too much of the frivolous.
“We’ve done what has been urgently needed, and we have been able to meet the demand over the last three or four years, but this year, ’09 and through 2010, will prove to be very challenging for us.”
The credibility gained by handling the flooding crisis has helped IT get to the table and participate in priority setting, and there are emerging technologies – Web 2.0, software as a service, and sourcing alternatives – that Cagigal would like to use to stretch his resources.
The protection of priorities
In an environment where the first instinct is to cut back, how does a CIO prevent deep budget cuts?
It helps to have spelled out priorities in earlier long-range planning on key strategic projects. Plexus Corp. has completed its global enterprise resource planning deployment and consolidation, and is undertaking the extension of that platform with the deployment of a new, custom-developed manufacturing execution system.
Other priorities that are baked into the IT spending blueprint are a custom developed warehouse management system, and a major deployment of Cognos and other business intelligence tools. That does not mean it’s full-steam ahead, according to Czajkowski, because at this point the company will be happy to get ad hoc reports directly to users. “We’ve got great ambitions for ’09, but we’ll probably scope this [BI] thing and get it ironed out, probably scale those back somewhat,” he said.
As the leader of the technology function for Plexus, Czajkowski said his first instinct in tough times is to figure out ways to reduce spend, but there are technology anchor elements that are not easily unplugged. He said the big strategic projects have to be presented as such at the beginning, and they have to be co-sponsored by people inside and outside of IT. That way, they tend to endure tough patches in the economy.
“We’ve got projects that run one, two, or three years in length,” he explained. “They are very well understood, very well co-sponsored by not only IT but somebody in operations. So when times get tough, we have a chance to not do the easy thing and unplug these big, important initiatives. That might be the easy thing to do for this year’s forecast or this year’s plan, but it’s great discontinuity to the organization.”
After nearly three years as the head of CUNA Mutual Group’s customer operations unit, Rick Roy has picked a challenging time to return to IT. With the help of a cross-functional portfolio management team that includes CEO Jeff Post, he’s taking a hard look at project spend across the enterprise. The priority-setting consensus is to continue to grow product lines with high demand among its credit union customers – products that will continue to grow even in this economic climate – while paring back investment for low-demand products such as insurance products tied to automobile loans.
“The purpose is to think through and prioritize where we spend money,” Roy said. “We won’t be able to spend as much as we’d like.”
Shoving computing outside the door
With the economy headed south, there probably won’t be much in IT budgets for emerging technologies, but Swaminathan (Accenture) indicated there may be a saving grace in basic economics – IT style. Five years ago, he said technology like ERP systems were accessible and affordable only for Fortune 1,000 companies and governments. Only they could afford the big data center, software management, and the programs needed to run such systems.
All that is changing thanks to the fact that computing now can “go out my door,” Swaminathan said, eliminating the need for a company to have a big data center and large-scale software management. For industries like construction, which has a lot of small companies in the form of contractors, crane operators, and warehouse managers that still rely on phones and spread sheets to coordinate work, this can be transformative.
“The moment somebody can provide all the processes for integrating all of them for the whole industry, and provide it from outside the firewall of any of the companies, you’re bringing very sophisticated IT capabilities to new industries,” Swaminathan noted. “That just didn’t happen before.”