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CIOs factor ROA into budgets

This week's CIO to-do list comes from Gartner's latest research into the minds of today's CEOs.

These survey results and recommendations, based on interviews of CEOs taken between January and September 2005, were presented at last month's Gartner Symposium/ITxpo in Orlando, Fla., by Gartner analyst Jorge Lopez. Here are some of his insights:

The big squeeze CEOs are growing ever more concerned that competition -- for resources and on pricing -- is killing their growth plans. The rising cost of basic commodities is squeezing margins. But CEOs may find it hard to pass on the costs to customers who are accustomed to "more for less." And customers tend to punish businesses that pass on higher prices too quickly, Lopez said. To deal with sustained price competition, businesses may have to change prices regularly. Having an ability to implement price changes more frequently than competitors can be valuable. What can IT do to help? Cost cutting is no longer enough. Offer one deep productivity improvement project (and make it happen) and consider dynamic pricing.

TMI (too much information) CEOs feel their management teams suffer from information overload. The "fog of war" -- hours of wading through e-mails, discerning good information from misinformation -- is keeping their management teams from doing their jobs. Why is this important? Seventy-two percent of CEOs see their managers as key to their companies' success. How can IT help cut through the clutter? Make managers and leaders more productive by reallocating money into tools that rationalize the information these executives really need to do their jobs. This means not only knowing which operations contribute to current business results but preparing business for a "new and different tomorrow," Lopez said.

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A mad, MA&D world To generate growth, many CEOs turned to mergers, acquisitions and divestitures in 2005. Gartner believes the trend is here to stay and will disrupt many business plans in 2006. CEOs are looking to take out competitors that have been weakened by using low pricing as their sole strategy. This reduces downward-pricing pressure and promises more pricing stability and possibly revenue growth through prices increases, Lopez said. CEOs of stronger companies will fight to protect themselves by making their companies less attractive to acquirers through cutting overhead and selling non-core operations (divestiture).

IT needs to focus on modularity. Don't let IT make the company more vulnerable. Get rid of ailing mega projects, the so-called walking dead. Then look at every business unit and determine if it could be prepared for separation easily. See how enterprise architecture can be improved to integrate acquisitions faster, and when the next merger becomes apparent, lobby for infrastructure investments to make the flexibility possible. This is the moment to argue for the middleware and messaging backbone apparatus you had trouble justifying before, Lopez said.

The ROA map to smaller IT IT gurus have been preaching that return on assets (ROA) will become a key metric for evaluating IT for awhile. This year's Gartner/ survey marked the first time CEOs marked ROA as the dominate tool to assess IT investments, Lopez said. The implication is that CEOs are looking for productivity gains from their IT dollars. As productivity increases, employee counts decrease. Gartner has already predicted a 10% annual decline in the IT workforce. What can IT do to improve return on assets? CIOs need to focus on IT investments that will lead to lower head counts. Think of the auto industry. ROA transformed manufacturing, improving productivity and leading to the delivery of better goods at lower prices. Discuss ROA with the CFO. Assign IT teams to analyze how new technologies and methodologies impact productivity. IT investments should be closely linked with strategic business initiatives. And now that software can be treated as a capital asset, depreciate it over the same three- to four- year period as hardware.

Three predictions for 2006 What will CEOs be fretting about next year? One, risk management and infrastructure resilience is on top of their minds again. IT should expect more interest in security and disaster recovery. Two, companies that embraced China for outsourcing projects may be getting cold feet, as intellectual property rights issues and lack of employee skills force them out of the market. IT should anticipate possible supply chain changes.Three, all years are not created equal, Lopez said. Business leaders are planning now for 2008, when China hosts the Olympics; the U.S. and Russia have presidential elections; and the first Kyoto carbon emission control deadlines arrive. IT should be proposing innovative projects that hit that 2008 window.

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