There was a joke at the height of the Cold War: What should you do in the event of nuclear missile attack? Take shelter, duck and cover, then kiss your butt goodbye. If you're trying to save IT projects — even the most strategic ones — you might feel the same way as you struggle through today's historic financial meltdown.
“I've never known so many people all predicting doom and gloom at the same time across every front,” says Peter Whatnell, CIO at Sunoco Inc. and the new president of the Society for Information Management. “I'm being overly dramatic, but there doesn't appear to be a ray of hope anywhere.”
As 2008 drew to a close, market research companies continued to slash their financial forecasts. In October, Gartner Inc. lowered its estimate for 2009 U.S. IT spending growth to 2.3%, down from an earlier prediction of 5.8%. And last month, Forrester Research Inc. predicted a 3% decline in spending on IT goods and services this year compared with 2008.
Companies aren't just talking about reducing IT spending; they're talking about reducing it drastically. “I'm hearing folks talk about significant double-digit reductions, and quickly,” says Whatnell.
Like emergency room doctors treating a gunshot victim, many executives feel that the priority is simply to stop the bleeding, says Gartner analyst Jorge Lopez. That mentality makes even strategic enterprisewide projects vulnerable. “[The victim's] relatives may be saying, 'Oh my God, he's getting married in three months,' but you can't even listen to that, right? If you don't stop the bleeding, there is no wedding.”
Some companies have even shortened their planning time frame from 12 or six months to just three because of economic uncertainty, says Forrester analyst Alex Cullen. Each quarter, they reassess their situation and decide whether to maintain the same level of spending.
“That can force a lot of uncomfortable trade-offs,” Cullen says. “But it is a good way of avoiding panic. It does keep options open, and at this time, the biggest thing is uncertainty. Nobody knows how bad it might get.”
Must IT executives resign themselves to kissing strategic projects goodbye? No. There are things you can do to keep critical initiatives on track.
Strategic to whom?
Like an emergency room doctor, you may have to perform triage. First, step back and take a hard look at the project. Sometimes CIOs consider a project strategic, only to find out later that they were the only ones who did.
IT people tend to justify projects in technical terms, rather than using financial metrics, says Michael Krigsman, CEO of IT consultancy Asuret Inc. In today's economy, the only projects to survive will be those rooted in concrete business value and proven by specific financial metrics, he says.
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But even those yardsticks may be evolving. Is the original business case still a priority? A project that was once justified by a four-year return on investment might fade into the background if the business is struggling with cash flow. The company's agenda may be quite different today than it was just six months ago, says John Ciacchella, a principal at Deloitte Consulting LLP.
Ironically, if the project really is strategic — if it involves the executive team and will enable transformation across the business — then it is by definition more than an IT project, which means the CIO's discretion is limited, Cullen says. In a crisis, the executive team “has to figure out where to cut and where to continue to fund, and that's not a CIO decision,” he explains.
IT executives should reiterate the benefits of the project and clearly outline the consequences of killing it. But if the other executives aren't persuaded, step back and shut up. “The CIO is first and foremost a member of the management team,” says Whatnell.
The focus should be on doing whatever is necessary to sustain the company. Cutting the project “may be absolutely the right thing to do for the company,” says Whatnell. “If [the other executives] are worried about making payroll in March, they may not be too worried strategically about what CRM is going to do for them in 2010.”
In fact, the mantra of “business value” is so last year. Cash flow is “the emerging mantra for 2009,” says Lopez. He says that an oil company IT executive recently told him that he was being asked to evaluate projects based on cash flow instead of ROI.
“Whatever project you want to save and are staking your reputation on, it had better be connected to dealing with this [economic] storm,” says Lopez. “Because if it's not, not only will the project be gone, but if you fight for it, you'll be gone, too.”
Make it relevant, right now
Smart CIOs will assess the new lay of the land and be able to explain how and why the project is still relevant or, better yet, even more relevant. Explain the value of the project in the context of current needs, says Teri Takai, CIO for the California state government, which is in the midst of a budget crisis.
While the state's IT budget has suffered cuts along with every other department's, she has been able to maintain long-term projects such as the replacement of the state's 30-year-old payroll system by persistently stressing the benefits of the new system. “The message has to be crafted in a way that provides immediate justification,” Takai says.
If the company needs cash, explain how the project contributes to cash flow. Perhaps the executive team wants to take advantage of the situation to acquire weak competitors. Emphasize how the project strengthens the company's ability to acquire and digest companies.
You may have to reorganize the project in order to make it relevant to immediate needs. Can you adjust the timing or the scope? Can you push ahead on things that produce immediate revenue? Can you defer certain costs?
At Harrah's Entertainment Inc., projects have always been evaluated based on their contribution to top-line sales or bottom-line profit, plus some less explicit, hard-to-measure factors, says Heath Daughtry, the company's vice president of enterprise IT. But today, projects need to demonstrate benefits in several major areas, including boosting efficiency and enhancing the customer experience, he says.
“It's no longer a one-dimensional ROI evaluation,” says Daughtry. “It has to hit on all the business strategies — on revenue, margin, EBITDA [earnings before interest, tax, depreciation and amortization], customer experience.”
That meant making some changes in one of Harrah's major initiatives so it would bring in more earnings sooner. The initiative, called Personalized Real-time Interactive Slot Marketing (PRISM), is designed to provide information and digital entertainment directly to customers through Harrah's 65,000 slot machines.
Harrah's is aggressively rolling out the project this year in its most profitable markets, where it is most likely to see the highest return on its investment, says Daughtry. In less profitable markets, it will wait till 2010.
Harrah's is also asking business partners to share in the risk as well as the rewards of some other long-term projects, says Daughtry. For example, a technology partner might help fund a corporate pilot project, which benefits the corporate partner and could also generate good press for the vendor.
Ciacchella cites two examples of Deloitte clients that have reorganized projects in order to accelerate business benefits. Both are large companies that are deploying ERP systems. At one company, the initial plan had been to roll out the entire ERP system first, then renegotiate contracts with suppliers. Instead, the company decided to renegotiate contracts now, even though the ERP system isn't complete.
“They won't be able to manage and monitor those contracts 100%, but at least they will get some portion of that benefit now,” Ciacchella says. “And they'll probably get better deals on those contracts by negotiating them now, in a down market, versus later, when the market starts to turn around.”
Another client decided that its priorities were customer retention and maintaining the revenue from those customers. So it is emphasizing the customer-facing aspects of its ERP project, such as adding capabilities to its Web portals, while deferring fancy back-office functionality such as business intelligence and financial reporting. Instead, the company set up manual, offshore systems to run the back office for a year, Ciacchella says.
Explore new methods
Sometimes the best way to save a strategic initiative is to rethink how to accomplish the project's goal. Go back to the drawing board and look at other ways to approach the problem. Technology advances so quickly that a project planned 18 months ago might now be completed more cheaply and efficiently using different means, says Vivek Kundra, chief technology officer for the District of Columbia, which as of December had a $130 million budget deficit.
Kundra, who has won several awards for his innovative use of IT, is no fan of expensive hardware and huge infrastructure investments. Instead, he favors cloud computing, consumer technologies and the collective ideas of the citizenry. Rather than spending $4 million that the district had budgeted to develop an intranet, for instance, Kundra used cloud computing, Google Apps and wikis to create a portal for only $475,000, he says.