by Jonathan Hassell

4 Ways Federal Fiscal Austerity Will Impact CIOs

Mar 20, 20136 mins

First there was the fiscal cliff. Now there's the sequester. Neither caused the sky to fall, but both will have a slow, steady impact on the economy. That means CIOs should tread carefully when crafting IT budgets for the next couple years--and shouldn't be surprised to hear 'No.'

March 1 has come and gone, and the sequester deadline has been reached in the United States. As this piece goes to the electronic press, federal agencies and government administrations are beginning to determine where cuts will be made, expenditures reduced, employees furloughed and so on.

It sounds like a dire scenario, and politicians and the media have been somewhat alarmist about the sequester’s effects on the American economy. But I’d like to offer a different point: I want to challenge all of us to consider the future, rather than reacting to an event that makes up a very small portion of the economy.

Related: 4 Ways the Fiscal Cliff Will Impact CIOs

Remember, the sequester cuts themselves are only a reduction in the increase in budgeted expenditures from year to year. There is no reduction in absolute terms in the amount of government spending attributed to the sequester. It’s a good time to get some perspective on how fiscal austerity is now a permanent part of the national, if not global, conversation.

It’s important to take a step back and look at the bigger picture in this story because the implications of austerity will be with us for several years—less spending, increased government obligations and more. What does all of it mean for you, the CIO?

1. There’s a Long-Term View to Fiscal Reckoning, Reconcilement

The sequester is getting a lot of attention, probably because it was this fixed date with easily identifiable and quantifiable repercussions and consequences that everyone said they wanted to avoid. (Whether everyone actually did want to avoid them is a deeper political story for another site). But the story is much bigger and longer term than the next few months or even the next year. We may be grappling with yet another “new normal” as the United States—and the world as a whole, to a degree—get its fiscal houses in order.

As Wells Fargo senior economist Mark Vitner said in a December 2012 interview with the Charlotte Business Journal, “The fiscal cliff [was] the beginning, not the end. Fiscal policy will continue to restrict the economy and the bite from taxes will continue to get higher and higher as deductions get whittled away over time.”

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A resolution to the sequester’s effects, if it comes, is by no means the end of the challenging time. The moves you make during this period of uncertainty—investing in certain kinds of staff, shifting services and producing consolidation savings, and identifying new business opportunities within the information you already have—will set you up well for the future, as the economy continues to internalize the effects of getting back on a positive track.

2. Austerity Is a Managed Decline, Not a Free Fall

Goods will still be sold. The lights will work. This isn’t a return to the Dark Ages. Consider what’s even happened since Jan. 1, the day a deal was reached to avert the fiscal cliff.

In the first quarter of this year, we’ve had an economy with private paychecks decreased; this is from the increased withholding accumulating over several checks since the start of the year to begin to pay for the increased taxes. That said, the economy has still grown in this period, and official numbers indicate that unemployment has lowered. The world hasn’t ended just because the American consumer has had less disposable income.

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The point here is that austerity isn’t a gunshot to economic activity. It won’t result in losing 10 percent of your budget overnight. It’s a long, slow journey to getting a fiscal house in order, and a resilient economy will eventually overcome. So there is not any need to panic.

3. Prepare for Budget Reduction Requests

As we move through the next couple of years, you’ll likely encounter budget cuts. Austerity might not be a free fall, but it does have slow and sure effects. It may even be a severe cut, like banking and financial service giant Citigroup shedding 11,000 jobs and booking a related $1 billion charge in its fourth quarter.

It’s a steep cut, to be sure, but of particular interest to CIOs should be where those cuts are coming from. Around 25 percent of the job cuts will be reductions in its technology and operations group, run by CIO Don Callahan. According to The Wall Street Journal, Citi plans to achieve greater efficiency through increased standardization and the use of automated processes.

Sound familiar? When the economy cools off and consumer demand drops, budgets need to adjust. This may even involve personnel reduction requests, which are never pleasant. There may also be a focus on reducing large, fixed, one-time capital expenditures—this is particularly true if your organization operates under the section of the tax code where some capital expenditures were able to be deducted 100 percent in the year they were incurred, not depreciated over several years—and translating those into variable operating systems that hopefully reduce themselves when used less and expand only when necessary.

Generally, this will mean delaying or deferring hardware requests and engaging more with cloud-based services that become variable expenses that flex with load and usage. Your giant, expensive refresh projects will probably end up on hold or scaled back significantly&mdasg;making it a fine time to invest in automation, to extend the life and functionality of your existing assets, and in the cloud.

4. Big Data Becomes Ever More Important to Find Hidden Opportunities

Your organization has tremendous data sets that grow larger and larger over time. In this body of work there is information on customer purchasing trends, website visits and habits, customer review data and so on.

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Analysis: How Big Data Brings BI, Predictive Analytics Together

In an environment where top-line growth is hard to find, CIOs must dig deeper and be an even bigger ally to the business. The data analysis tools and frameworks that can tease out the insights within these datasets will all be in high demand in a year that may be starved for demand. In your budget, find room to hire qualified data scientists. These professionals are the pianists of your business intelligence symphony. Lobby, push and fight to hire the best folks; they will pay for themselves in new opportunities and increased efficiencies.

As a CIO or a member of technical staff, it’s important to understand the “macro” picture of the fiscal cliff with the appropriate amount of acknowledgement and respect. The real key to successfully navigating this challenging time, though, is to continue to invest in making IT less of a cost center and more of a business ally. Keep your options open, do more with less and identify opportunities for the business to grow overall. That’s a recipe for success in any environment.

Jonathan Hassell runs 82 Ventures, a consulting firm based out of Charlotte. He’s also an editor with Apress Media LLC. Reach him via email and on Twitter. Follow everything from on Twitter @CIOonline, Facebook, Google + and LinkedIn.