ORLANDO, Fla. -- CIOs should keep one word in mind as they prepare for the new year: restructuring. That is the uppermost issue on the minds of your CEOs as the economy lurches toward 2009, according to the latest research and surveys from Gartner Inc. And it cuts a wide, wide swath.
Restructuring in 2009 entails organizational restructuring, as in layoffs. It means financial restructuring, as in de-leveraging to operate more on a cash basis. It means corporate restructurings, as in spinning off units, preparing to acquire troubled companies or preparing to be acquired. It might mean the restructuring of entire industries as it becomes apparent who will survive the current economic shakedown.
The impact on the IT agenda likely will unfold slowly, but CIOs should be prepared to "clear the table," said analyst Jorge Lopez, who presented the findings on opening day of Gartner Symposium/ITxpo in Orlando, the annual extravaganza that attracts some 6,000 IT professionals from around the world.
"You cannot assume the systems that survived previous budget cycles will survive today," Lopez said. The question you should ask: "If you were not already doing this today, would you start doing it now?"
On a day like Monday, when the Dow Jones industrial average rose 936 points, its biggest one-day point gain in history, which followed its worst week in 75 years, forecasting the 2009 economic scenario is a fool's game. And Monday, Stamford, Conn.-based Gartner was hedging its bets all over the place, on total IT spending for 2009 and on CIO budgets. The IT industry will not see the dramatic reductions seen during the dot-com bust, when budgets plummeted from mid double-digit growth to low single-digit growth, according to Gartner.
"In a worst-case scenario, our research indicates an IT spending increase of 2.3% in 2009, down from our earlier projection of 5.8%," said Peter Sondergaard, senior vice president at Gartner and global head of research. The U.S. and Western Europe will be the worst affected, but emerging regions will not be immune. Europe will experience negative growth in 2009; the U.S and Japan will be flat, he said.
The read on IT budgets, taken from preliminary data from Gartner's annual survey of 1,400 CIOs, is anywhere between an average 3% increase, the rosiest of predictions, to about a 2% decrease, Gartner's Mark McDonald said in his Sunday session on the 2009 CIO agenda.
But there is no question this recession hits at a bad time for IT, Lopez said, because budget growth in recent years has been modest, ranging from 1.6% in 2004 to 3.2% last year. It is true that after the Draconian cuts of the tech bust, well-run IT organizations operate lean with pockets to trim if necessary, and if asked to find 10% to cut in their budgets, most CIOs could do it without undue pain.
But next year, Lopez said, there will be CEOs faced with making 20%, 30% even 60% cost reductions. He said it's best to be prepared to help the business do that while -- here's the mind boggler -- still keeping in mind how best to position the company for growth when the recession ends.
Tactics your CEOs are considering and how to help
CEOs tell Gartner they cannot write off assets fast enough -- debts that won't recover, investors who won't play ball, projects that are not performing, employees. They want to clean financial house in a few fell swoops, Lopez said, on the assumption that the market won't punish them as hard for the write-offs in troubled times.
CIOs should expect to support high-peak public relations campaigns as the stuff hits the fan. As public trust erodes in this financial crisis, the more information a company can provide to the public and investors about itself, the better. Some companies might even publish internal blogs to show they have nothing to hide, or invite external customers to participate in company social networks to foster trust. If there are things to hide -- illegal stuff -- CEOs who don't want to go to jail probably want to flush it out. Data management will leap to the forefront once again.
You cannot assume the systems that survived previous budget cycles will survive today.
Jorge Lopez, analyst, Gartner Inc.
In this climate, CIOs can also expect to get emergency business intelligence requests for information that could be needed in due diligence to acquire or to be acquired. You might be asked to unravel systems for a unit that is being spun off. Don't be surprised if you're put on a plane at 9 a.m. for a whirlwind tour of a target's IT systems. Or called upon to do a "lash-up" acquisition integration in a matter of days, so at least the companies can have integrated financial systems.
Sourcing to cheaper places is on the table for projects that can be transported digitally. But global instability caused by what some economists see as a growing disjunction between flat-growth economies in the West and faster-growing economies elsewhere throws a monkey wrench into offshoring.
"The world is not flat yet," Lopez said. Tensions between these "two-speed economies" are on the rise. Deals that look good in dollars-and-cents terms might be imprudent between partners "who are not speaking the same language."
Of course, the high cost of oil means CEOs are rethinking everything from manufacturing in faraway places, like China, to the cost of moving people. Overseas operations might get moved to Mexico. There could be talent shortages.
Lopez suggested CIOs look at the topology of the company, from the flow of goods and transactions, to the flow to knowledge. Figure out how each is tied to the systems architecture and come up with scenarios for adjusting those systems on the fly, if needed.
One arcane financial point: Sovereign wealth funds -- many from oil-rich countries -- will step into the vacuum left by private equity pulling out (or disappearing). These funds look for long-term gains -- 20, 30 years out, as a hedge against what happens to these oil barons when the oil dries up. So when you are thinking IT strategy, you cannot take off the table investments that might take a decade or more to pay off, because that is the kind of return these funds are looking for.
Let us know what you think about the story; email Linda Tucci, Senior News Writer.