CIO Albert Ruocco decided to use the quieter weeks before the December holiday to test how an artificial intelligence tool could add capabilities within his company, West Monroe Partners. For Ruocco, the proof of concept does more than tease out the potential business value; it gives him time to watch the economic indicators, too.
“I have the option in two months to decide whether to invest. So if the economy doesn’t look good, I can table it if we don’t want to take a risk,” he says.
Although Ruocco says he hasn’t changed how he manages his IT department as a result of speculation about a potential recession, he acknowledges that he’s more cautious.
“If there were predictions of sunny skies ahead, I might take more chances, but I think there’s a little more caution in the wind,” he says, adding that he’s watching key economic indicators — like most other executives — and trying to discern what they mean.
Predicting when a recession might strike or whether it will be anytime soon is well outside the wheelhouse of the typical CIO. Yet some leading authorities are advising their executive clients to have plans in place should the economy take a downward turn.
That’s just makes smart business sense, says Joseph Tobolski, CTO at digital consultancy Nerdery.
“CIOs should absolutely plan for the possibility of a recession as part of their 2020 strategy,” he says. “It’s always smart to pay attention to macroeconomic conditions and have contingency plans in place in case something unexpected occurs.”
Others are offering similar advice.
Gartner, in its June 2019 paper, General Manager Update: Are You Ready for the Next Recession, concludes that although “a downturn is not the likely scenario for either 2019 or 2020, the risk is high enough to warrant preparation and planning.”
No C-suite wants to be caught off-guard, says Gartner research vice president and distinguished analyst John-David Lovelock.
“The worst thing that can happen to an organization is to call a meeting and say, ‘We have an economic situation and we have to react.’ The best thing is to say, ‘Here’s our playbook,’” he adds.
Align, automate, rationalize
For CIOs, recession planning starts with alignment to the rest of the business and, more to the point, alignment to what their C-level colleagues believe should happen if a recession hits.
“There shouldn’t be surprises when a recession happens,” Lovelock says, noting that many executives have yet to take this step — even though CEOs have historically level-funded or cut tech budgets in such times. “The C-suite in most organizations is not aligned on how they’re going to handle a recession, mostly because they don’t have the conversation.”
As part of that planning process, Lovelock advises CIOs to consider the actions they’d take during a downturn in regards to rationalizing their IT portfolio and how reduction and consolidation of IT tools could help them save resources. CIOs should also expect to adjust long-term strategies, which typically get extended or derailed. CIOs should also rethink how they identify acquisitions and divestitures, as the criteria for both usually shift in bad economic times.
Lovelock acknowledges that such tasks are always part of the CIO’s job, but these pieces often take a back seat during booming economies where the CIO’s time is better spent supporting growth-related projects.
“But in a recession, when growth initiatives become precarious in their returns, CIOs turn their attention to trimming exercises because they may have a better opportunity cost,” he says.
Executive advisors say CIOs can take other steps now to help cushion the blow of a recession, whenever it might happen. They counsel CIOs to automate wherever they can to gain efficiencies and reduce costs; move more workloads to the cloud to gain more flexibility and reduce capital costs; and optimize existing processes and technologies.
Furthermore, they say CIOs should avoid any large investments and big initiatives that span over multiple years, as those moves will tie up resources — money, people and technologies — and limit the organization’s ability to pivot quickly in response to changing market dynamics.
“I’d tighten up all my contracts; I’d shorten the lifespan of my contracts and negotiate even harder,” says Hunter Muller, CEO of HMG Strategy, adding that savvy CIOs are looking to drive down their fixed costs to increase their flexibility.
Ruocco is taking similar steps at his organization. He says he’s revisiting his plans quarterly so he can tweak strategic, financial and staffing decisions as he aligns his roadmap with current circumstances every three months. He says this approach allows him to be much more responsive to all sorts of business circumstances — the economy being only one of them.
He’s also keeping his department lean; for example, he’s using contractors for short-term projects instead of adding headcount to handle work that may or may not be forthcoming depending on market conditions. And he’s limiting capital investments that could generate financial commitments that are difficult to manage during a recession.
Ruocco says this approach represents a new way to manage IT; he says this approach isn’t driven by the economy, although its flexibility and agility will help in a recession. He explains: “I try not to overcommit, but the reasons have nothing to do with [the economics of the day]; it’s about being smart about how you make investments, and ultimately that’s a good practice no matter what the economy looks like.”
He says that same thought process is at work as moves more to the cloud and negotiates contracts for maximum flexibility, opting for shorter-term agreements that will allow him to readjust for any given reason — including the economy.
“It has a risk-mitigation element,” he adds.
Other experts say they, too, have seen many CIOs adopt such practices over the past several years even as the country experienced a growth economy and that such policies are good in good economic times as well as bad.
“The CIO who does those things, and does them very well, will be well set up for a recession,” says Chris Steel, a senior partner and the Americas head of transformation at PA Consulting Group.
Steel notes that CIOs should focus on running their shops as efficiently as possible. They need to be supporting their businesses with people and machine transformation while adopting agile working approaches to flex easily.
“Our advice is to make sure they have real flexibility and agility in their organizations,” Steel says. “Our advice to any CIO is also to make sure they’re not waiting for a looming recession to run their organizations at best cost and maximum efficiency. CIOs who do that now will find it will help them do well in a thriving economy, and it will help them survive and thrive in a recession.”
Still, some researchers say not enough CIOs have adopted those principals.
“We’re already seeing some but not quite enough of that,” Lovelock says. “Most of what we’re seeing now in contracts is how to scale up, and that’s a growth mindset.”
Show IT’s value
To be clear: Most companies are still in expansion mode — despite ongoing speculation about whether a recession is coming.
In fact, IT budgets are increasing. Gartner predicted that global IT spending will grow 3.7 percent in 2020. And the 2020 State of IT annual report on IT budgets and tech trends from the IT market community Spiceworks found that 44 percent of businesses plan to increase their technology spend in 2020. That’s up from the 38 percent who had increased their tech spend in 2019. Spiceworks reported that the 2020 spending increase is driven by businesses seeking to replace outdated technology.
Yet, as veteran CIOs can attest, CEOs have a history of trimming tech spending during lean times and they’re likely to do so again — especially if IT leaders aren’t able to demonstrate the importance, value and criticality of what they do.
That, though, could be a mistake.
“I would expect some holdback on nonstrategic or opportunistic projects. However, IT is not a luxury to be reduced in times of economic downturn,” Tobolski says. “With the way digital is headed, IT is essential to business survival and shouldn’t be looked at as a cost center. While there are always opportunities for efficiency and cost savings, most CIOs should make the case for continuing strategic projects and keeping high-performing IT staff engaged.”
Steel says his firm conducted research during the Great Recession to learn what steps leading organizations took that helped them do well during those years. The research showed that they not only ran efficiently but identified ways to use technology to differentiate themselves. In short, they found opportunities.
Now, about a decade later, Steel says it’s imperative for CIOs to articulate which technologies can differentiate their organizations — now and whenever the economy heads south. CIOs, he and other leaders say, must seek tech-driven opportunities.
“CIOs need to reinforce with the CEO the fact that, if there is a downturn in the economy, it’s not a good time to cut into any innovation spending. Research shows that companies that continue to invest in innovations during downturns fare better financially over the long run,” says Tom Hoffman, senior research director with HMG Strategy.
Larry Wolff, founder and CEO of Wolff Strategy Partners, had first-hand experience with that approach as a CIO during the early 2000s’ recession. His CEO at the time issued across-the-board cuts, sparing only IT. Wolff says the executive team supported that decision because Wolff says he consistently articulated where and how technology initiatives were generating not only savings but actual revenue growth, too.
He now advises CIOs to run their IT departments with that in mind.
“Whether you’re looking at recession or expansion, your strategy as a CIO shouldn’t change. You have to measure the value that IT creates. If you’re measuring the value that IT creates, then IT is recession-proof,” Wolff says.
More importantly, experts say that kind of strategy can help carry an organization not only through a recession but help it emerge as a leader on the other side.
“During the last major recession in 2008, some companies enacted proactive layoffs and deferred large-scale capital expenditures. However, this was also the start of the cloud computing era, and the forward-looking companies took the opportunity to modernize systems, setting them up for accelerated growth when the recession ended,” Tobolski says.
He adds: “Recessions offer an opportunity for companies to jump ahead of their competitors by not artificially limiting or stopping strategic projects that will contribute to growth once the recession ends. Strategic-minded CIOs will make the case for protecting certain projects so as to leave the recession in a period of strength.”