'CIOs Need To Change Gear To Align With New Priorities'

The series of events, which has recently unfolded in the global financial market, has led to one of the worst economic recessions worldwide since the 1929 depression. The repercussions of the financial and liquidity crisis that started in the US can already be felt in other parts of the globe. In India, the recent news of Jet’s downsizing and the steep fall of the stock market have already set the panic ball rolling. Experts claim that this is only the beginning. Let us examine how IT can save the day for organisations in the current scenario and what are the strategies being adopted by CIOs to sail through these rough waters.

Umesh Jain, CIO, YES BANK, says, “The financial crisis is a reality; however, it might be wrong to call it a crisis, specifically in the Indian context, where the term ‘uncertainty’ is more appropriate.”

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Although the Indian growth story is expected to remain strong, nobody is immune to the impact of the current happenings due to globalisation of the economy at large. According to Satish Pendse, CIO, Hindustan Construction Company, the impact on Indian organisations is much less as compared to those in the west. “It’s just that the finance has become a bit more expensive. I, therefore, expect people to be more cautious but there may be no major impact here.”

The global meltdown is bound to cause cost cutting across all functions in the organisation including IT. According to Diptarup Chakraborti, principal research analyst, Gartner India, the captive IT departments of Indian companies won’t be much affected as in the case of service providers, however, there might be an expansion freeze.

A recent report by Gartner indicates a slowdown in IT spending. The report quotes Peter Sondergaard, senior vice president, Gartner, as follows, “In a worst case scenario, our research indicates an IT spending increase of 2.3 percent in 2009, down from our earlier projection of 5.8 percent.” Chakraborti feels IT budgets for the next year could reduce by as much as 20 percent. A report published by Forrester in the wake of the crisis noted thus, “A prolonged recession would mean several quarters of declines in IT purchases, not just two or three quarters with little or no growth in late 2008 and the first half of 2009.”

The BFSI sector, which is generally a major spender on IT, is expected to cut its budgets in the times to come. So far, major Indian banks have not been directly hit and hence, the impact on IT spending is still not visible. K M Asawa, DGM-IT, Bank of Baroda, feels that going forward, BFSI analysts are anticipating a slowdown, but one that may not be as hard hitting as that seen in other countries, thanks to the industry’s insulation and sound banking policies.

Experts claim that the impact of the crisis is not going to be restricted to the BFSI sector though; it will impact other industry verticals as well. Asawa says, “It may so happen that industries will fall sick even before BFSI, since the slowdown could impact them much faster than the robust Indian banking sector. There are already evidences to this effect.”

Cost Cutting may not be most apt Solution

The global meltdown is bound to cause IT cost cutting and derailment of new projects. According to Jain, in the current market situation, both top line and bottom line are under pressure and hence, an immediate reaction would be to respond by cutting expenses – which includes workforce optimisation. Chakraborti though feels that instead of focussing on what needs to be cut; CIOs should focus on what needs to be spent. P Sebastian, VP-IT, Mudra Communications, prefers to engage in cost optimisation rather than cost cutting and feels that others should follow suit. IT is the life line for many enterprises; hence, cost cutting may not always be possible.

Chakraborti believes that in these trying times CIOs should focus on modernising applications rather than increasing investments in desktops and PCs. Jain has a slightly different perspective, “It is a good time to bring forward projects requiring significant infrastructure investments, as long as the business is convinced that these are long term investments. It is also a good time to shop for significant discounts.”

Data centre consolidation, bandwidth optimisation, virtualisation, computing optimisation, cloud computing and open source solutions are some of the initiatives, which CIOs feel can help achieve significant cost savings. “CIOs will have to develop innovative models for vendor management, outsourcing, internal project development, etc. Migrating to open source software can prove to be beneficial in the current times,” says Sebastian.

Impact on ongoing and new IT Projects

Liquidity crunch and lack of working capital may result in derailment of ongoing projects or termination of new projects. Pendse feels that projects where the business case is not very strong are more likely to be put on hold.

CIOs will need to rank the projects based on criticality and then, push away those that do not emerge the most important. Chakraborti feels that at this stage CIOs need to question every project and they should diligently decide whether it makes sense to carry forward those projects in such trying times.

CIOs are currently not seeing any major impact on IT projects and have not postponed any major projects. However, they unanimously agreed that new projects cannot be merely treated as IT projects, they will have to be closely aligned with business needs. Sebastian said, “If an IT project is aligned to the business, especially a new initiative, delay may not happen unless the project’s capex costs are enormously high.”

Jain slightly differs in this context. He has doubts whether the tightening cash flow will actually impact IT projects. He says, “There are enough financing options available to not get bogged down by a cash flow crunch. Also, vendors are more than willing to finance and stagger payments at this point.”

Pendse says that even if projects are put on hold, one should use this as an opportunity. He says, “The focus should be on driving realisation of higher business value from the investments already made.”

For doing this, CIOs will need to transform their entire approach towards new IT investments. Asawa feels a more modular, large time frame approach can be of help in this period. “There is a possibility of emergence of cost sharing of resources through common deployments. Developing in-house capabilities for IT operations rather than outsourcing, leasing of infrastructure etc, may also provide a less capital-intensive deployment option to tide over the crisis for the medium term.”

However, it is not necessary that all new projects should be shelved. “If the new project makes more sense and is providing more cost efficiency then the CIO should implement it instead of concentrating on the old project,” suggests Chakraborti. Thus, decisions about IT projects can be relative to the organisation and the business strategy.

Jain concludes, “As business priorities change, CIOs also need to quickly change gears and align themselves with new priorities.”

So how are CIOs realigning themselves with the changed business scenario? What steps are they taking to reinstate IT’s commitment to business objectives? How can this crisis be converted into and opportunity by every CIO? Read on in the second part of this feature soon to be published on Biztech2.0.