Recession fallout: The IT resources squeeze
One of the premises of this research is that IT priorities for 2010 are shaped by an expectation of a return to modest growth in 2010. This widely shared assumption is borne out by Hackett research (Fig. 3). Companies participating in our study reported average revenue declines of four percent in 2009 but expect four percent growth in 2010.
Participants also indicated IT resources were cut back in 2009 at a faster rate than actual business declines (7.3 percent vs. 4.0 percent). However, during the recovery, IT resources are expected to grow at a slower pace than business volumes. The net impact: a reduction of IT resources relative to business volume during both phases in the cycle. In other words, some IT resources cut during the recession will be permanent (Fig. 4). This situation further increases and extends the gap between supply and demand for IT services.
The cutback in IT resources does not mean demand for IT services will be reduced commensurately. In fact, G&A functions as well as operations, sales and marketing are looking to IT for help delivering on management’s mandates for efficiency. The net result is a genuine IT resource squeeze. In the short term, many companies have responded with unsustainable practices such as deferment of technology refresh or postponement of application rationalization initiatives. In 2010, the IT strategic priorities and agenda will be highly influenced by this resource squeeze.
Business realities are shaping IT strategic priorities
To understand study participants’ top priorities, it is essential to first understand the broader business issues driving these priorities as well as the IT resources squeeze:
Demand management – Companies report that their top priority in 2010 is effective management and prioritization of IT demand, and the closely related issue of improving capacity planning and portfolio management capability. This finding is consistent with what one would expect in view of the IT resource squeeze.
Companies fully understand they operate today in an environment in which demand for IT services far outstrips supply capacity. The ability to manage demand, plan capacity and implement an agile solution strategy is critical to business survival.
Cost control – Finding ways for IT to further reduce cost is a top priority for 2010. However, most companies have pulled back from last year’s “survival” mode and are now searching for a more balanced approach. In Hackett terms, this includes preservation or restoration of best practices in effectiveness as well as efficiency.
Agility and service delivery model – Another high priority is optimizing the IT service delivery model to increase agility without taking on new fixed cost. This priority is directly related to IT organizations’ need to create a more scalable and variable capability and cost structure in the absence of investment funding. One of the lessons of the economic crisis is that a rigid cost structure cannot handle unanticipated, major revenue fluctuations.
As companies downsized in response to the recession, IT talent management and holding onto top talent gained in importance. Luckily for most companies, the weak job market convinced many top IT staff to wait out the recession where they were. Having been put under tremendous stress over the past year, the risk is high that IT’s top performers will leave when the labor market improves. Though the mass exit of retiring baby boomers from the labor market may be less of a concern than before the financial crisis, companies must tune up their practices to actively manage the risk of talent loss through a comprehensive talent management strategy.
[A comment on the talent issue: For years, companies have ranked talent as a key issue across all of the G&A functions, including IT. However, we have observed very few actual implementations of talent management programs. Even good, formal recruiting strategies that would give companies an edge in attracting top IT talent have been few and far between.]