by Jonathan Hassell

4 Ways the Fiscal Cliff Will Impact CIOs

Dec 20, 20126 mins
Financial Services IndustryGovernmentTechnology Industry

Odds are, Jan. 2, 2013 won't begin any differently than your last work day of 2012. Even if Congress and the President reach a deal, though, CIOs will feel the impact of the fiscal cliff as the new year progresses. Here are four lessons you should apply to the 'new normal' that austerity demands.

America is abuzz with the talk of the impending financial calamity known as our fiscal cliff. You can find all the information you would ever want about this event by just reading a newspaper. What is lacking, though, is a bit of perspective, both about the event itself and also from the point of view of CIOs and technology staff.

What does all of this mean for you, the CIO? Here are four key considerations.

1. The Fiscal Cliff Is a Long Downhill Slide, Not a Plunge

What the alarmist media seems to be reporting in earnest&mash;and I suppose in a sense one can’t blame them, given the name of this phenomenon—is that, if a deal is not reached come Jan. 1, the American economy will simply seize up. Goods won’t be sold. Lights won’t come on. Planes, trains and automobiles won’t run. And so on.

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This is absolutely not the case, and it is important to understand why in order to maintain a reasonable perspective. For one, the tax increases that are part of the sequester are essentially amortized over the entire year. Individual citizens and businesses alike will not suddenly be asked to come up with the entire tax increase difference on Jan. 1. That liability will accrue over the entire year.

Second, President Barack Obama has some authority to delay the implementation of the spending cuts ordered in the sequester, using his executive order power to direct agencies to hold off on executing on those cuts. He may well use this authority if a deal is near, but not quite signed, sealed and delivered, by Dec. 31. Before getting all up in arms about the Dec. 31 deadline, remember this: In general, Jan. 1 and 2 are going to look a lot like Dec. 30 and 31.

Now, if Congress and the President continue to dig into their positions well into January and no progress is made toward a deal, by the time mid-February or early March rolls around, you will have an economy with significantly less government spending. Private paychecks will be smaller, too, thanks to the increased withholding accumulating over several checks since the start of the year to begin to pay for the increased taxes. Then the real effects of the “cliff” begin in earnest—and the situation will likely deteriorate from that point forward.

That said, the point here is this: Don’t return to your office after your holiday vacation quaking in your boots. The world still goes on.

2. Prepare for Budget Reduction Requests

If the situation wears on, you are sure to encounter a budget cut or two. 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 a substantial portion of those cuts are originating. Around 25 percent of the job cuts will come from 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 like a familiar refrain? 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% 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.

3. A Longer-Term View to Fiscal Reckoning, Reconcilement

The fiscal cliff is getting a lot of attention, probably because it is a fixed date with tangible repercussions and consequences that everyone in power wants to avoid, but the story is much bigger and longer term than even 2013. We may be grappling with yet another “new normal” as the United States—and the world as a whole, to a degree—get their fiscal houses in order.

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As Wells Fargo senior economist Mark Vitner said in a December interview with the Charlotte Business Journal, “The fiscal cliff is 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.”

A resolution to the fiscal cliff, 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.

4. Big Data Becomes Ever More Important to Tease Out 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 even more of an 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 for 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.

The bottom line: 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, but the real key to successfully navigating this challenging time 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, on Facebook, and on Google +.