IT Leadership: Best Practices for Surviving an Economic Downturn

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According to a study conducted early this year by Mercer Management Consulting, a New York City-based corporate strategy company, the average downturn lasts about a year, with the economy receding 1 percent to 2 percent. Still, it’s incredibly difficult to judge when a downturn will right itself.

"The challenge is that you can see a downturn coming, you can know you’re in one, but the duration and depth vary," says Robert Atkins, vice president of Mercer and coauthor of the study. "A CIO’s steps and strategies need to reflect this uncertainty."

When a recession takes hold, most managers instinctively reach for the lever marked "10 percent cut across the board" and hunker down, Atkins says. They order layoffs, hoard cash, delay product development and wait for tough times to end. If they’re lucky, he says, that’s what their competitors will do. What successful managers do, however, is start to prepare their transition to economic good times. They can do this by becoming indispensable to their customers and by cutting costs carefully rather than impulsively. "The challenge during a downturn is for IT to work on improving processes and automation," says Shanti. "You have to make an investment during this time to prepare for an upswing. When that comes, if you’re not prepared, you can be very inefficient."

Despite moderate pressure to cut costs, Shanti is using the current slowdown to automate his supply chain and inventory processes. The project is an example of Shanti’s mantra of management: Always improve efficiency and plan ahead. Every five years, Shanti meets with senior management and creates a five-year strategic plan that focuses on using IT to improve efficiency in every aspect of the organization. These plans, he says, are the best way to be prepared for possible downturns.

"In the auto business, we expect downturns every three years, so we plan for that," Shanti says. "It just so happens that in the last 10 years, we had a boom that didn’t stop. But that didn’t keep us from planning for a downturn."

Shanti thinks the current plan will hold up as long as the slowdown doesn’t turn into an outright recession. If that occurs, all bets are off and IT goes back under the microscope. "Then you have to look at your top 10 priorities," he says. "Numbers eight, nine and 10 will probably be pushed out until 2002. If it becomes a recession, you must cut spending, and everything from operations to priority projects has to be reshuffled."

Shanti and his team reevaluate their strategic plan every year. "If we didn’t do that last summer we’d be in bigger trouble right now than we are," he says.

Get Organized

Last fall, when the economy was still good, CIOs around the country sat down to draft their budgets for fiscal 2001. Then, within weeks, resources became scarce and suddenly there wasn’t any money for a percentage of projects that had received funding in the planning process. No one likes giving up on projects, but you have to do it and do it right.

At Roadway Express, CIO Obee recently established a program management office that oversees all the company’s large cross-functional projects scheduled for the next nine to 18 months. All information for each project, from expected benefits, projected costs and ROI, is filed together. This means that if Obee needs to pull the plug on an initiative, he doesn’t have to guesstimate the consequences.

"We can do ’what if’ analyses," Obee says. "We take two or three projects and see what happens if we defer them or eliminate them and see how it affects the overall picture and if it will help us return to the bottom line."

The project management office makes it easy to spot projects that don’t warrant the use of scarce resources, Obee says, and it helps prevent his staff from wasting time working on projects that aren’t feasible.

Protect Your Flank on the Business Side

Alignment is important all the time, but it becomes even more critical during hard times. Business-side executives will ask questions about cutting costs and improving efficiency while maintaining performance, and CIOs need to know how to give good answers.

"It’s important that you help the business side understand how your initiatives will help the company and what needs to be done for them to succeed," says Textron’s Bohlen. "At meetings, listen twice as much as you talk, and then explain your problems and needs in terms of how it will affect the business." One thing CEOs are looking for from their CIOs is responsiveness, Bohlen says. "You have to be aggressive when it comes to making decisions like delaying or pushing off a key project if the market has changed. Be quick to react and be willing to stop and start. It shows you know how to generate growth. It’s hard when you’ve had 20 people dedicated to one project and you have to change direction. But you have to be responsive to survive. Denial won’t do anything for you in the long run."

For alignment to improve, Bohlen says, it’s essential for CIOs to put themselves in the CEO’s shoes. "Get out on the production floor for a few days and walk a purchase order through the entire process so you understand what’s working, what’s not and whether something like a new supply chain system or an organizational change is going to fix it," he says.

The Customer Comes First

When resources become scarce, the customer feels the pain. Lower levels of staffing can adversely affect customer service. CIOs say that during downturns they often feel a greater demand on their time from internal and external customers, but have to balance available resources with acceptable levels of service. Now is the time to examine your approach to your external customer base regarding profit levels. But don’t make rash decisions about customer relationships without thinking hard, says VerticalNet’s Talaber.

"Don’t have knee-jerk reactions," Talaber advises. "Don’t react to users and customers without understanding the business model and what the desired results are. For example, if an internal user is pushing for you to complete a project that’s not on your product roadmap, and they divert the attention of people in your group from working on projects that are on the roadmap, keep yourself focused. Don’t be pushed around."

In good times, all customers are good customers. But during a recession, it’s time to look at which customers are profitable, says Atkins of Mercer Management in a report titled "Bring on the Recession." "Should a recession hit, your best customers typically provide an even greater share of your profits. Your worst customers typically become value destroyers. So cull your portfolio and cut out your weakest market segments."

Once you’ve identified your best customers, reach out and "kill them with kindness," Atkins says. Do what you can to make their lives easier by easing payment terms, adjusting offers and lending staff to help with problems. This can reinforce your status as their supplier of choice, and they will repay you with loyalty.

Roadway Express’s Obee, however, vehemently disagrees with Atkins’ advice. For him, and for many other CIOs, there is no such thing as a bad customer, particularly when the economy is rattled.

"Any company that knows their costs and profits the way they should will say this isn’t a time to dump customers. It’s just the opposite," Obee says. "If you’re going to find unprofitable parts of a customer’s business with you, it should be done during good times, not bad."

During the past three years, Obee’s department built a data warehouse to manage Roadway’s customer information. Every transaction with each customer is recorded and broken down. For example, Obee can look at any particular customer and see whether or how often they use Roadway’s international or time-critical shipping services. If there are services the customer isn’t using, Roadway’s sales force can jump in. By working with customers to maintain business connections, there is less need for culling unprofitable customers.

"You can’t look at any customer as a monolith based on a cost composite," Obee says.

IT’S MACHO TO SAY one relishes the challenge of difficulty, but let’s be honest: Hard times are not fun. They are, however, here, and you’ve got to deal. The critical question is what shape you and your company will be in when the hard times are over.

"Each downturn is an opportunity for CIOs and their departments to rally around a common cause, to demonstrate pride in teamwork, to put in long days and nights, and to make some difficult decisions," Obee says. "In every problem and challenge there is learning and opportunity."

And when hard times are over, you may just find yourself in better shape than you were before.

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Copyright © 2001 IDG Communications, Inc.

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