Staying the course: Technology decision-making in turbulent times

Staying the course?Technology decision-making in turbulent times

A report from the Economist Intelligence Unit

Sponsored by


© The Economist Intelligence Unit Limited 20091

Contents

Contents 1

About the research 2

Executive summary 3

Introduction: A technology stress test 5

Opportunity in adversity? 7

How technology decisions are being made 10

Technology choices 14

Conclusion: Investing for the future 17

Appendix: Survey results 18



S taying the course? Technology decision-making in turbulent times is an Economist Intelligence Unit white paper, sponsored by SAP BusinessObjects.

The Economist Intelligence Unit bears sole responsibility for the content of the report. The Economist Intelligence Unit�s editorial team executed the survey, conducted the analysis and wrote the report. The Þ ndings and views expressed here do not necessarily reß ect the views of the sponsor.

Our research drew on two main initiatives:

! We conducted a wide-ranging online survey in February and March 2009. A total of 267 executives took part from around the world.

! To supplement the survey results, we also conducted in-depth interviews with senior executives and independent experts.

The author of this report was Kim Thomas and the editor was Denis McCauley. Our sincere thanks go to the survey participants and interviewees for sharing their insights on

this topic.

May 2009

About the research



In the business world, no aspect of company operations will emerge unscathed from the toughest economic crisis in three generations. But information technology (IT), and the hard-won inß uence

that chief information ofÞ cers (CIOs) and other leaders have gained for it, appears to be surviving the crisis with conÞ dence largely intact in many if not most companies.

The reputations of technology and the IT function did not fare well following the previous downturn early in this decade. Since then, technology has become Þ rmly embedded in company processes, and chief executive ofÞ cers (CEOs), chief Þ nancial ofÞ cers (CFOs) and boards have become convinced of the importance of IT to their businesses. In the preceding crisis, overambitious technology investment was blamed for many corporate ills; in this one, business leaders appear to view technology as an important instrument in preparing their Þ rms for recovery. Such executive-suite conÞ dence means that in many companies technology-led projects and IT budgets are enjoying greater protection than other categories of spending.

Continued improvement in CIO-CFO relationships is evidence of Þ rms� expectation that technology can help them to emerge stronger from the recession. Relations between CIOs and CFOs have often been contentious, particularly when the budget knife is out. However, nearly one-half of executives in an Economist Intelligence Unit survey conducted for this study maintain that co-ordination between the two has improved at their Þ rms in the past year. A majority of both CIOs and CFOs rate levels of trust, communication and understanding between the two as strong. CFOs offer a rosier picture of the relationship than do CIOs, but few in either group report a decline in the strength of their relationships.

Other key Þ ndings of the research include the following:

! CIOs are not losing their place at the table. Where they have gained a voice in major business and technology decisions, CIOs� positions are not being undermined as a result of the current economic crisis. Very few survey respondents believe that the inß uence of CIOs in technology investment decisions will decline in their Þ rm over the coming year. A sizeable minority, meanwhile, expect the CIO�s involvement in high-level business strategy discussions to expand.

! Opportunistic Þ rms are receptive to renewed technology investment. A large minority (44%) of the Þ rms surveyed say that they will be �on the business offensive� in the coming year, looking for

Executive summary



acquisitions or openings to take market share from weakened rivals. These Þ rms are more likely than those adopting a �defensive� stance to consider selective new investment in technology, with the aim of improving their competitive positioning ahead of recovery. Technology investment proposals will not enjoy an easy ride, however. More executives are becoming involved in investment decisions, and the volume and detail of information required is increasing. Higher rates of return are being demanded, and projects with shorter return periods are being favoured.

! Most Þ rms are averse to suspending existing technology projects. There is a recognition among corporate leaders that the implementation of major technology projects that they have launched is important to their Þ rms� ability to survive the downturn. Less than one-quarter of survey respondents believe that major existing IT-led initiatives should be suspended until business conditions improve. Many believe that the crisis presents a good opportunity to drive through technology-led initiatives. This does not mean that they will be embarking on entirely new initiatives, however. Few executives, even at growth-oriented Þ rms, believe that now is a good time to launch major new IT projects. CFOs also show support for following through on existing investments, but it is unclear how often spending requests in such areas will stand up to competing investment priorities in the business.

! The focus of investment continues to be on improving customer relationships. Customer service will remain the priority area for IT investments during the coming year. This is for good reason, as evidence mounts from several sectors that customer loyalty is eroding and customer churn is increasing. Information management will also be prioritised, especially when it comes to projects designed to improve Þ rms� understanding of customer behaviour.

Maintaining technology investment when times are very tough is not without risks for companies. But some risk-taking is necessary if they wish to emerge from the downturn in a strong position to grow. The management at opportunistic Þ rms are betting that technology will help to deliver the competitive edge they are seeking, and they are willing to keep investing to ensure this happens. CIOs and the IT function will need to deliver.

Who took the survey?

The Economist Intelligence Unit�s survey, conducted in February and March 2009, gathered the views of 267 executives on technology decision-making in their businesses. The sample was senior: 45% of all respondents were C-level executives, and over one-half of

these were CIOs or CFOs. It was also global, with 34% of respondents based in Europe, 25% in the Asia-PaciÞ c region and 24% in North America. Over 20 different industries were represented in the survey, although the majority of respondents (63%) came from the technology, Þ nancial services, and consumer goods and retail sectors. More details of the survey sample and results can be found in the appendix.



Businesses, along with the rest of society, are enduring the severest economic crisis since the second world war. Isolated reports of positive business results in the spring of 2009 suggest that

the crisis may be easing, but the Economist Intelligence Unit considers a return to healthy growth in most world markets to be a distant prospect. After contracting in 2009, the US and Japanese economies, for example, will narrowly manage to return to positive growth in 2010, but economic contraction will continue in the euro area. Business leaders hold correspondingly sober hopes: a majority of executives surveyed for this report do not expect to see recovery in their markets before the end of 2010.

Companies around the globe have reacted to the falls in market demand and the drying up of credit in a predictable fashion: they have implemented redundancies and cuts in expenditure. Scalpels are also being applied to technology spending. Outlays on information technology (IT) contracted sharply in the last quarter of 2008, according to IDC, an analyst Þ rm. The latter�s current baseline scenario foresees further contraction of spending in 2009, averaging -1.8% globally for the year.1 IT departments have lost no small number of staff in the mass redundancies that have shaken the banking and other sectors over the past six months.

A look below the surface reveals silver linings to the technology cloud, however. IT equipment, such as servers and personal computers, has suffered the sharpest cuts in business spending, according to IDC, while spending on services and software during the crisis has tended to be more stable.

Real GDP growth (%, at market exchange rates)2008 2009 2010 2011 2012

World 1.9 -3.0 1.2 2.4 2.8North America 1.1 -2.9 1.0 1.4 1.9Western Europe 0.7 -4.4 -0.5 1.1 1.6Transition economies 4.7 -4.1 1.4 3.5 4.1Asia & Australasia 3.0 -1.8 2.8 3.9 4.3Latin America 3.9 -3.2 1.5 3.4 4.1

Middle East & North Africa 5.9 1.0 4.4 4.9 5.0

Sub-Saharan Africa 4.6 -1.5 3.1 4.9 4.9

Source: Economist Intelligence Unit, May 2009

1 IDC, Executive market watch, March 2009. The forecasts are in constant currency terms.

Introduction: A technology stress test



Technology industry analyst Robin Bloor sees the fall of equipment spending as the result not just of poor market conditions but also as evidence of Þ rms� success in implementing new techniques, such as server �virtualisation� (a method of partitioning a single server computer so that it can do the work of several), to improve the efÞ ciency of technology.

The companies in our survey�and particularly those with a stronger tendency to pursue opportunistic growth�have in fact been less inclined to cut spending on technology than that on other parts of their operations in the past year. As we will discuss later, they are also more receptive to selective new investments in technology than in other areas of the business in the coming 12 months.

This may be seen as a measure of the success with which organisations have used technology to improve the way that they operate. IT is now deeply woven into the fabric of most companies (although not yet everywhere in the world), underpinning processes in every part of the business. In the past ten years senior business leaders�and not just chief information ofÞ cers (CIOs)�have become convinced of the productivity beneÞ ts and competitive edge that technology can provide, and for this reason they are reluctant to suspend major technology-led initiatives.

Tough times nonetheless require tough decisions. Cost containment will remain the dominant spirit of most senior management teams until the signs of recovery are clearer. In this environment, far from all technology initiatives will survive the intensiÞ ed scrutiny of boards and chief Þ nancial ofÞ cers (CFOs).

This report, based on a global survey of senior executives and in-depth interviews with CIOs, CFOs and other decision-makers in the retail, technology and Þ nancial services sectors, explores how businesses are making technology decisions during the downturn. Which initiatives are seen as most critical to Þ rms� renewed growth when the recovery comes? If cost containment is now paramount, is the CIO�s and the IT function�s hard-won role as a �strategic partner� in the business under threat?

CIOs and other IT professionals are likely to Þ nd our research Þ ndings on these and other issues mildly reassuring. Every baseline scenario, however, has an alternative�usually gloomier�one to accompany it. Should the economic crisis deepen and markets take far longer than expected to recover, no category of business investment will avoid the scalpel.



Business leaders are wisely guarded in their expectations regarding market recovery, but many display an opportunistic spirit when it comes to their own Þ rm�s approach to the economic crisis. Just over

one-half of our survey respondents expect their Þ rms to remain �on the defensive� over the coming year, the dominant aim being to survive the crisis with minimal losses. A large percentage (44%), however, state that management will be �on the offensive� when it comes to pursuing opportunities for business growth. Whether this many will prove to be truly brave remains open to question, particularly if today�s �green shoots of recovery� prove illusory and the crisis deepens. But the Þ nding does suggest that far from all Þ rms plan to remain hunkered down for the duration of the recession.

The opportunistic group of companies will seek growth mainly by seizing market share where customer churn is on the rise or where weak Þ nances have put their rivals on the ropes. Macy�s, a large US department-store chain, reß ects this assertive attitude. Sunil Verma, the Þ rm�s vice-president of information technology, argues that the recession provides an opportunity for stronger companies to beneÞ t. �We deÞ nitely have a sense that now is the time to position ourselves, to come out and grab market share that�s going to become available when our competitors go out of business.�

Many Þ rms in this group will also be on the lookout for merger and acquisition opportunities while they can obtain good valuations of targets� worth. In addition, some may move to launch new products or services or enter new geographic markets, although these Þ gure less prominently among growth initiatives to be pursued while the crisis lasts.

Opportunity in adversity?

Key points

# Most Þ rms will be seeking just to survive over the coming year, but many will take an opportunistic approach to growth during the crisis.

# Growth-oriented companies are more receptive than others to considering renewed technology investment over the coming year.

# Many of these Þ rms view the crisis as a good opportunity to drive through major technology-led initiatives in the business, although entirely new initiatives are likely to remain on hold.

50

27

26

21

15

Capture new market share from weaker rivals in current operating markets

Pursue new M&A opportunities to take advantage of good valuations

Expand into new product/service markets

Expand into new geographic markets

Accelerate R&D process to introduce new innovations to existing products

If your firm will be “on the offensive” over the next 12 months when it comes to pursuing growth opportunities, which of the following best characterises the approach it is likely to take? Select up to two. (Top responses; % respondents)

Source: Economist Intelligence Unit survey, March 2009.



How willing are those Þ rms that claim to be growth-oriented to spend in pursuit of such initiatives? Survey majorities in this group as well as the �defensive� group have been cutting costs in the business since the onset of the crisis. A majority of the opportunistic Þ rms say that they will be receptive to the idea of renewed investing over the coming year, however�more so than the rest of the survey sample. This does not mean that they will be spending aggressively: most will invest with caution, and many will remain focused on cost reduction. But consideration of any investment at all is a more positive stance than most Þ rms have exhibited during the past year.

A good track recordThe IT function might once have been the obvious candidate to bear the brunt of cost-cutting in tough times. This has changed. Firms in our survey that were cutting costs throughout the business were asked to identify the operational areas where costs could be eliminated with the least impact on business performance over the next 12 months. Only one-Þ fth of respondents cite IT as such an area, whereas operations and production, procurement and sourcing, and marketing are viewed as more likely sources of fat that could be trimmed away without damage to business performance.

Why are IT budgets not suffering as much pain as other categories of spending in the business? One reason is that many Þ rms have already achieved a good deal of success in recent years in cutting their operational IT spending through the implementation of efÞ ciency measures. It is the success with which technology has impacted on other parts of the business, however�helping to cut costs, boost efÞ ciency and create new opportunities to reach customers, partners and suppliers�that has done more to convince management and boards that technology-led products should be protected where possible.

Executives at most Þ rms in the survey are not inclined to suspend such projects. Less than one-quarter of respondents hold the view that their Þ rms should halt major existing IT-led initiatives until

Total

Financial services

Consumer goods & retailing

IT & telecoms

Do you agree or disagree with the following statement: "We should suspend existing major IT-led initiatives until businessconditions improve"? (% respondents)

143626204

133726222

143128198

164618183

Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree Don't know/Not applicable


Total

Financial services


IT & telecoms

Do you agree or disagree with the following statement: "The economic crisis presents a good opportunity to drive throughmajor IT-led initiatives"? (% respondents)

172227358

418313611

62828318

172027369



Technology�s positive impact in most parts of the business has helped convince management that technology-led projects should be protected where possible.



business conditions improve. Forty-three per cent of respondents (and fully one-half of those in the growth-oriented group) also believe that the crisis presents a good opportunity to drive through major technology-led initiatives�a higher percentage than those who think the opposite.

This reß ects a recognition that following through on existing technology-led initiatives is important to Þ rms� ability to survive the downturn. Macy�s, for example, is embarking on a major cost-cutting initiative that will involve laying off 7,000 people across the company. Mr Verma, however, reports that his technology budget has increased this year, because the business did not want to cancel certain projects that had already been approved. This is, he believes, because IT is recognised as a �strategic partner� in the business.

It may be no surprise that the more growth-oriented of the surveyed Þ rms are more receptive than others to renewed technology investment. This should not be construed as an eagerness to embark on entirely new initiatives during the economic crisis: the largest proportion of executives�from growth-oriented and defensive Þ rms alike�believe that now is not the time to pursue major new technology investments. The opportunistic group, however, seems to be betting that driving through technology-led projects and increasing IT investment�at least selectively�in tough times will pay off in the form of better competitive positioning come the recovery.

Mahendra Negi, CFO of Trend Micro, a Japan-based provider of content (or information) security services, explains his Þ rm�s approach to technology spending during these tough times: �When everyone can spend, it�s hard to differentiate. We are in the position where we have the cashß ow to make investments. If we can do that, and our competitors are unable to, it can provide us with the necessary differentiation.�

Mr Negi is not alone among Þ nance executives in holding this view. Judging by the survey results, CFOs are more positive about the outlook for technology investment in their Þ rms over the next year than for investment in the business overall. CFOs are more upbeat on near-term technology investment than are CIOs. It is open to question how often technology investments will retain the support of CFOs when other urgent business priorities are pressing. These relatively positive CFO views on investment are nonetheless reß ective of executive-suite hopes that technology will help Þ rms to weather the crisis and prepare for recovery.

53

43

66

Total

"Defensive" firms*

"Opportunistic" firms**

Share of respondents saying their approach to technology spending over the next 12 months is characterised by one of the following two statements: "Invest in areas advancing your competitive advantage" or "Invest only in areas providing a clear return on investment"(% respondents)

* Respondents expecting their firms to be "on the defensive" in terms of business growth** Respondents expecting their firms to be "on the offensive" in terms of business growth Source: Economist Intelligence Unit survey, March 2009.



Technology spending may be enduring less pain than other categories of business expenditure during the current crisis, but it is coming under intensiÞ ed executive-suite scrutiny nonetheless.

The majority of businesses are now exercising tighter control from the centre over how money is allocated to IT projects. More than one-half of surveyed executives, for example, say that their CFOs will become more involved in IT spending decisions over the next 12 months than previously, while 43% of respondents say the same of their chief executive ofÞ cers (CEOs).

However, where CIOs have established themselves�and the IT function�as central in the board�s eyes to the success of the business, their positions are not being undermined as a result of the crisis. Very few survey respondents (6%) believe that the inß uence of CIOs in technology investment decisions will decrease in their Þ rm over the coming year. A sizeable minority (28%, and 33% of those from opportunistic Þ rms), meanwhile, expect the CIO�s involvement in high-level business-strategy discussions to expand.

CFOs are not riding roughshod over CIOs in decisions on technology investment. On the contrary, their relationships appear to be getting stronger, or at least remaining stable. Nearly one-half of surveyed executives maintain that co-ordination between CFOs and CIOs has improved over the past year. A closer look reveals a perception gap: CFOs offer a rosier picture of the relationship than do CIOs (see box). Very few among either group, however, report a decline in the strength of their relationships.

Our interviewees report stable or improving CIO-CFO relationships at their Þ rms. Scott Floeck, CIO of Nuance, a US-based provider of speech and imaging technology, says that the most notable change at his Þ rm is that his own Þ eld of responsibility has been extended: �Both the CEO and CFO

How technology decisions are being made

Key points

# CIOs are not losing inß uence over technology investment decisions as a result of the economic crisis.

# CIO-CFO relationships appear on the contrary to be getting stronger, or at least remaining stable.

# Investment decisions are taking longer, however, and the yardsticks of success are changing, with faster returns being demanded.

Total

Financial services


IT & telecoms

Do you agree or disagree with the following statement about the role of senior executives in technology decisions:"Co-ordination between the CIO and CFO has improved in the past 12 months"? (% respondents)

723403711

222582215

86393611

934354010





have always played an active role in the governance of IT investments. The difference now is that I�m being asked to play a broader role and look at how we take the discipline used in IT decisions and apply it to investments in other parts of the business.�

At Groupama Insurances in the UK, a broker-only insurer (which means that its products are provided only through brokers), the process of deciding where IT spending should be directed has remained constant, according to the company�s CIO, Jem Eskenazi. At the start of the budgeting process, Mr Eskenazi discusses with the CEO which projects are urgent and which can be put off until next year. He then holds discussions with each business unit about which of their development requirements can be met in the coming year.

Even where the CFO has taken tighter control, the CFO-CIO relationship has remained positive. Mr Negi relates that when he carried out the Þ nancial planning for 2009 at Trend Micro, he imposed a cap on most departments, keeping spending at 2008 levels, but when it came to IT he allowed the CIO to propose the projects that he wanted to implement and then evaluated each one on its own merits.

Slower decisions, quicker returnsSenior management teams may be convinced of the need to push on with key technology investments, but they are clearly scrutinising the technology investment proposals put to them more closely than

56 75

66 78

50 78

56 75

Communication

Trust

Mutual understanding of each other’s key objectives

Agreement on the major objectives of the business

How would you assess different facets of the relationship between the CIO and the CFO in your organisation? Share responding "strong" or "very strong"in each facet.(% respondents)

CIOs CFOs


58Total

59

60

52

How CIOs and CFOs are really getting on

For the CIOs and CFOs participating in our survey, levels of communication, trust and understanding of business, technological and Þ nancial objectives appear robust�more evidence that IT is now considered a true partner in the business. Few complaints emerge from either CIOs or CFOs in the survey about the other�s commitment to making the relationship work. This is not to say that they see eye to eye on every subject, however. CIOs offer generally positive assessments of the state of relationships at this level, but they are more equivocal than CFOs. For example, 78% of CFOs rate communication between CIOs and CFOs as strong or very strong, while 56% of CIOs say the same. Similar disparities are apparent when it comes to the extent to which CIOs and CFOs

agree on the major objectives of the business, as well as the degree to which they understand each other�s key objectives. In assessing mutual trust in their relationships, their views are more closely in line, with 78% of CFOs and 66% of CIOs saying that trust is strong or very strong.

The disparity suggests that CIOs are not fully satisÞ ed with the state of relationships at the top level. While most believe that the level of trust that they enjoy with the CFO is strong, many clearly feel they are not being kept informed by CIOs as fully as they should be. Moreover, many feel that the CFO still does not have a full understanding of the technology imperatives for the business. CIOs can be pleased with the conÞ dence that they have won in recent years within the executive suite, but many believe there is much work to do before they truly become equal partners with their Þ nance counterparts.



previously. Because of this, the investment decision-making process is becoming more deliberative. Among our respondents, 40% say that the length of time it takes to reach decisions on technology investments has increased over the past year, and more expect such proceedings to lengthen over the coming year. The dire economic conditions currently prevailing clearly dictate the need for extra caution and scrutiny.

Many executives report that more technology investment decisions require board-level discussion than previously, and that there are more individuals involved in the discussions. �Whereas in the past, I�d have been sitting around the table of the investment committee with the CFO and CEO, at that same board we now have the line-of-business managers, our customer service people and others,� observes Cory Eaves, CIO of Misys, a UK-headquartered technology services supplier to the Þ nancial and healthcare sectors.

The yardsticks of project success are also changing. When prioritising technology projects, it is clear that boards are looking for higher rates of return and shorter return periods. Almost all the executives interviewed for this report state that, at their Þ rms, investments promising short- or medium-term returns are currently favoured over longer-term projects.

No easy technology decisions at decentralised retailers

Spar, a chain of convenience stores with its international headquarters in the Netherlands, has taken the decision to reduce its IT spend in the economic downturn. Selected investments are going ahead if they provide a demonstrable business beneÞ t, according to Roy Ford, retail IT controller of Spar�s UK business, but making spending decisions is not straightforward given the Þ rm�s structure, as the UK business comprises six separate regional distribution companies.

Mr Ford is given a set of targets, and has to make recommendations to the six constituent companies on

how to achieve them. �In the past, investments have been left more at local IT directors� discretion, whereas now the pressure is coming from the whole business.�

The six businesses will often have different priorities, says Mr Ford. �What is important in one might be stock management, so driving down stock in stores might be a key priority, whereas another will be concerned about business intelligence, and therefore their priority is to get more information out of the stores. The six different businesses all have to be able to move at a speed they can deal with.�

Because the companies operate as a consortium, there must be broad consensus about how money is spent. �If four out of six want it, then the consortium will pay for it. If only one company wants it, they will normally have to fund it themselves,� says Mr Ford.

Total

Financial services


IT & telecoms

To what extent do you believe the yardsticks by which your company measures the progress of technology investments willchange over the next 12 months as a result of the economic crisis? (% respondents)

7185421

496522

8195814

5194630

Substantially Somewhat Not at all Don’t know/Not applicable


Boards are looking for higher rates of return and shorter return periods.



�Our expectations for ROI [return on investment] have changed,� conÞ rms Mr Floeck of Nuance. �Our focus is on getting a positive ROI measured in months, not years.� It is a similar story at Groupama, says Mr Eskenazi. �We�ve Þ ne-tuned our key performance indicators over the last Þ ve years. The only change for us this year is that we will probably not do a long-term project with an ROI in three to Þ ve years; we�re looking at projects that have much shorter periods of return.�

Businesses are recognising, says Royce Bell, CEO of Accenture Information Management Services, that they need to respond more rapidly to changing economic circumstances. This requires them not simply to aim at faster returns on investment, but also to be able to drop projects quickly if necessary: �Instead of saying �I now need to implement this project, and it will take 18 months�, they are trying to implement it in a more agile fashion: �We�ll do the Þ rst three months, see where we are and then see if it still makes sense.� �

313128

293934

313923

Periods for achieving ROI will be shorter

Key performance indicators will be defined more tightly

Required rates of return on investment will be higher

If you answered "substantially" or "somewhat" to the previous question, how do you expect the yardsticks to change?Select up to two. (Top responses; % respondents)

Financial services Consumer goods & Retailing IT & Technology & Telecoms

34Total

32

30




G iven tighter budgets, greater scrutiny and more demanding measures of success, what types of technology choices are Þ rms making? As suggested, many Þ rms are putting off longer-term IT

projects where it is tougher to demonstrate an early beneÞ t to the business. Groupama, for example, has decided to decelerate the transition to SOA. Although SOA will provide business beneÞ ts, says Mr Eskenazi, it does not offer an immediate ROI. Projects going forward for his Þ rm include the development of an extranet to improve communication with brokers, and connectivity to aggregator sites that provide comparative insurance information to customers.

Customer service will remain a priority area for IT investments over the coming year, for a good reason: companies can ill afford to lose customers in a downturn. As Mr Negi of Trend Micro argues, �Acquiring customers is always expensive. If you lose your customers, it�s very expensive to replace them.� This being the case, companies will probably need to be ready to spend more: Þ rms in many sectors, and especially retail and consumer goods, report rising rates of customer churn as consumers and businesses seek lower prices more aggressively.

For this reason, the acquisition of new customers will probably take a back seat to customer retention over the coming year. Says Mr Bell: �People have realised that the cost of customer acquisition is huge, and the people you acquire tend not to be loyal anyway. So quite a lot of customer-segmentation analysis is devoted to determining which customers are more important and which to spend money on.�

Reduced customer loyalty may be one consequence of the recession that persists well after markets recover. Mr Bell maintains, however, that companies� focus will eventually have to return to the acquisition of new customers. For the moment, he believes, Þ rms are not looking that far ahead; the priority for most businesses is to emerge from the recession leaner and more agile.

Financial services Consumer goods & retailing IT & telecoms

36Total

34

30

55 25 42

20 61 33

13 50 24

Customer service

Information management (the flow and quality of management and other business information)

Supply-chain efficiency

In your view, IT-led initiatives in which of the following areas should enjoy the highest priority over the next 12 months?(% respondents)


Technology choices

Key points

# Customer service will remain a priority area for IT investments over the coming year, particularly as customer disloyalty and churn increase.

# Many Þ rms will prioritise spending on information-management initiatives, to continue improving their understanding of customer behaviour.

# Within IT, server-virtualisation initiatives will be pursued, as these promise to deliver early cost savings, while projects with longer-term returns (such as services-oriented architecture, or SOA) may be delayed.

Rising customer churn means that retention of existing customers will likely take priority over acquisition of new ones over the next year.



Partly for this reason, a large number of Þ rms will also give priority to investment in improving the quality and ß ow of information. When asked where better information and analysis will help them most in the coming year, the largest number of survey respondents (42%) say that achieving a deeper understanding of customer behaviour will be their foremost objective.

Better information is needed in more areas than this, however. The past two years have made it clear that Þ rms in many industries�not just Þ nancial services�have made some extremely poor decisions, owing to factors such as inadequate due diligence in acquisitions, overexposure to weak suppliers or even a poor appreciation of their own Þ nancial situation. When it comes to getting better information, the growth-oriented Þ rms in our survey place emphasis on improved visibility and analysis of Þ nancial

"Defensive" firms* "Opportunistic" firms**

42Total

32

31

30

55 25 42

20 61 33

13 50 24

3648

33 31

36 27

27 33

Customer behaviour/preferences

Competitor activity

Pricing trends in your markets

Financial performance

In which of the following areas would better information and analysis most help you to make sound decisions during the next 12 months? Select up to two.(Top responses; % respondents)

* Respondents expecting their firms to be "on the defensive" in terms of business growth** Respondents expecting their firms to be "on the offensive" in terms of business growth Source: Economist Intelligence Unit survey, March 2009.

Improving customer service:routine but vital

Since the Þ nancial crisis began, Mahendra Negi, CFO of Trend Micro, a global network-security services provider headquartered in the Japanese capital, Tokyo, has insisted on budget cuts in several departments, but with IT he has taken a different approach, allowing the CIO to put forward proposals and then approving those investments that provide a high return. Customer service is one area where technology investments are being considered. For example, whereas Mr Negi has decided that an upgrade to new desktop software can wait another year, problems with a call-centre operation in the Philippine capital, Manila, that caused a drop in satisfaction levels among customers resulted in the immediate implementation of an upgrade.

Enhancing their understanding of customer needs is also a priority for companies, particularly as buying behaviour undergoes change in a recession. Retail and consumer-goods Þ rms, which are at the sharp end of

interaction with consumers, place stronger emphasis than other Þ rms in our survey on IT spending over the coming year to improve information management. Nick Wharton, CFO of UK automotive-products retailer Halfords, believes that at times of economic pressure all businesses need to improve the quality of their information in order to make better, faster decisions and allow them to Þ ne tune the service they provide to customers. �This is particularly important in retail,� he says. �Halfords has over 10,000 products in its stores, so it is important to understand what promotions are working well when we put certain products together at certain price points. In addition to further investment in our multi-channel offering, we will also invest more this year in improving key management information.�

�In recessions,� Mr Negi reminds us, �customer requirements change, because they are struggling through the same difÞ culties we are experiencing. Like us, they have to prioritise investments. If a company doesn�t adapt to the changed requirements of its customers, the chances are that it will be disrupted by a competitor or new entrant.�



performance and competitor activity, as well as of customer behaviour.Within the IT function itself, server virtualisation is a priority among several of the CIOs whom we

interviewed, because of the quick returns achievable in terms of reducing data-centre operating costs. Firms are also exploring the cost-efÞ ciency beneÞ ts of utilising �cloud computing�, a model whereby IT services are managed by external, web-based parties. Although it has not yet been taken up widely, analyst Robin Bloor believes that Þ rms will begin to appreciate the quick wins that cloud computing offers, if nothing else in terms of saving on operational costs.



Businesses understand the need to keep an eye on the long game: while trying to keep IT costs low in the short term, they also know that continued, selective investment will help them to stay

ahead when the recession ends. Major projects initiated before the downturn are, by and large, being driven through rather than halted, in recognition of the fact that they have longer-term value to the business. New technology projects, however, are currently being considered only if they offer clear and early returns for the business.

It is a delicate balance. Boards recognise that successful planning for the long term is likely to mean funding projects that have no immediate return. The problem of how to square short-term cost-cutting with long-term investment is never an easy one to solve, and few of the Þ rms surveyed or interviewed for this report appear yet to have done so. The challenge is particularly difÞ cult when, as Mr Bell puts it, markets are jittery and investors are generally in it for the short term only.

Some risk-taking investment is necessary, however, if companies want to emerge from the downturn ahead of the competition. The management of opportunistic Þ rms that are planning to be �on the offensive� during the coming year are conÞ dent that IT will help to deliver the competitive edge they are seeking, and they are willing to maintain investment in major technology projects to ensure that this happens. For CIOs and the IT function, this raises the stakes: the inß uence in the business that they have fought so hard to gain will be at risk if they do not deliver.

Conclusion: Investing for the future

18 © The Economist Intelligence Unit Limited 2009

AppendixSurvey results


Appendix: Survey resultsIn February-March 2009 the Economist Intelligence Unit conducted a survey of 267 executives of companies from around the world. Our sincere thanks go to all those who took part.

Please note that not all answers add up to 100%, either because of rounding or because respondents were able to provide multiple answers to some questions.

Mid-2009

End of 2009

Mid-2010

End of 2010

2011 and beyond

Conditions will never fully recover to those prevailing before 2008

Don't know

0

9

31

26

27

3

4

By when do you think conditions in your market(s) will have recovered fully from the downturn? (% respondents)

Better

The same

Worse

Don't know/Not applicable

54

38

6

2

How well-positioned is your company, compared to your main competitors, to weather the downturn? (% respondents)

51

44

6

On the defensive (ie, simply surviving the crisis with minimal business losses)

On the offensive (ie, seeking new M&A opportunities, or capturing new market share)

Don’t know

Thinking more generally about your business, do you believe that your senior management team will approach the next 12 months primarily on the defensive or on the offensive, in terms of business growth? (% respondents)

Capture new market share from weaker rivals in current operating markets

Pursue new M&A opportunities to take advantage of good valuations

Expand into new product/service markets

Expand into new geographic markets

Accelerate R&D process to introduce new innovations to existing products

Other, please specify


50

27

26

21

15

3

1

If you selected “On the offensive” in the previous question, which of the following best characterises the approach your firm will likely take over the next 12 months?Select up to two. (% respondents)

Cut costs across the board

Cut spending selectively

Hold spending constant

Invest in areas advancing your competitive advantage

Invest only in areas providing a clear return on investment


Don’t know/Not applicable

29

39

11

10

9

0

2

Which of the following best characterises your company's approach to spending in the business overall since the onset of the financial crisis? (% respondents)











13

26

10

27

21

1

2

Which of the following do you expect will best characterise your company's approach to spending in the business overall over the next 12 months? (% respondents)








14

32

22

15

14

0

2

Which of the following best characterises your company's approach to technology spending since the onset of the financial crisis? (% respondents)








8

20

15

27

27

1

4

Which of the following do you expect will best characterise your company's approach to technology spending over the next 12 months? (% respondents)

Operations and production

Procurement/sourcing

Marketing

IT

Finance

Research & development

Supply chain

Sales

Customer service



33

31

25

22

16

16

11

7

4

5

6

If cost-cutting is a priority throughout the business, in which of the following parts of your organisation do you think that costs can be reduced with the least impact on performance over the next 12 months? Select up to two. (% respondents)

Now is not the time to pursue major new technology investments

We should suspend existing major IT-led initiatives until business conditions improve

The economic crisis presents a good opportunity to drive through major IT-led initiatives

We should wait to see how our competition is investing in technology before deciding on our investments

Do you agree or disagree with the following statements about IT initiatives and investments? (% respondents)

1228192714

143626204

172227358

327332394





Find new ways of reducing cost by streamlining processes

Improve information access to facilitate better decision making

Increase speed and agility

Build new channels of reaching customers (eg, web portals)

Improve security and minimise risk



46

19

16

13

5

1

0

While economic and market conditions remain difficult, what do you think should be the primary objective of IT initiatives in your organisation over the next 12 months? (% respondents)

36

34

30

16

15

11

10

10

8

3

1

1

Customer service

Information management (the flow and quality of management and other business information)

Supply-chain efficiency

E-business (eg, online selling, supplier portals, etc)

Risk management

Business process outsourcing

Enterprise mobility

Customer segmentation

Compliance and governance

Reducing carbon emissions



In your view, IT-led initiatives in which of the following areas should enjoy the highest priority over the next 12 months? Select up to two. (% respondents)

It takes us longer to decide on an investment

No change

We have accelerated the time it takes to decide on an investment


40

45

11

3

How has the time required to make decisions on technology investments changed over the past 12 months? (% respondents)

It will take us longer to decide on an investment

No change

We will accelerate the time it takes to decide on an investment


43

30

21

6

How do you expect the time required for decisions on technology investments to change over the next 12 months? (% respondents)




44

20

18

8

7

5

2

16

There is need for extra caution and scrutiny due to the economic conditions

More technology investments now require board-level discussion

There are more executives involved in the decision than previously

More technology investments now require input or approval from line-of-business managers

The information required to make the decision is not available quickly enough

The information required to make the decision is not of sufficient quality



If you responded above that it has taken/will take longer to decide on technology investments, what are the main reasons for this? Select up to two. (% respondents)

Sufficiency

Accuracy

Depth of analysis

Timeliness

How would you assess the information currently at your disposal for making key decisions about investments in your part ofthe business? Please rate for each listed information attribute. (% respondents)

8265610

121226527

31928419

21933425

Very good Good Neither good nor poor Poor Very poor Don't know/Not applicable

Customer behaviour/preferences

Competitor activity

Pricing trends in your markets

Financial performance

Input costs

Project status reporting

Supplier performance/health

Performance/health of potential acquisition targets

Compliance with regulatory requirements



42

32

31

30

20

11

6

6

6

1

1

In which of the following areas would better information and analysis most help you to make sound decisions during the next 12 months? Select up to two. (% respondents)




CEO

CIO/CTO

CFO/Finance director

IT director

Line-of-business heads

How do you expect the involvement of different executives in decisions about business strategy will change over the next12 months? (% respondents)

134255

4125628

254053

4186315

3115334

Will increase Will remain the same Will decrease Don't know/Not applicable

CEO

CIO/CTO

CFO/Finance director

IT director

Line-of-business heads

How do you expect the involvement of different executives in decisions about technology investments will change over thenext 12 months? (% respondents)

345043

465139

244252

385533

4145526

Will increase Will remain the same Will decrease Don't know/Not applicable

Co-ordination between the CIO and CFO has improved in the past 12 months.

Almost all technology investments—not just major ones—must now be approved by the CFO

When it comes to cost-cutting decisions, the CFO should take the lead even when it comes to technology, and the CIO’s role should be to helpimplement these decisions.

Do you agree or disagree with the following statements about the role of senior executives in technology decisions?(% respondents)

723403711

4112254414

3822243012


Communication

Trust

Mutual understanding of each other’s key objectives

Agreement on the major objectives of the business

How would you assess different facets of the relationship between the CIO and CFO in your organisation? (% respondents)

8172647

8172547

71132743

7272447

11

12

9

13

Very strong Strong Neither strong nor weak Weak Very weak Don't know/Not applicable




Substantially

Somewhat

Not at all


21

54

18

7

To what extent do you believe the yardsticks by which your company measures the progress of technology investments will change over the next 12 months as a result of the economic crisis? (% respondents)

34

32

30

24

20

17

13

0

0

Periods for achieving ROI will be shorter

Key performance indicators will be defined more tightly

Required rates of return on investment will be higher

Frequency of progress reports will be higher

Project status reports will give greater prominence to business targets than before

Key performance indicators will be more numerous

The risks will be defined more clearly



If you answered "substantially" or "somewhat" to the previous question, how do you expect the yardsticks to change? Select up to two. (% respondents)

Our information requirements prior to making an investment decision have become more demanding

The quality of information we receive about investments has kept pace with requirements since the onset of the crisis

We rely on technology to monitor, analyse and plan investments within my business, including investments in technology and other areas

20. Do you agree or disagree with the following statements about change in the monitoring of major technology and otherinvestments and projects throughout the business since the onset of the financial and economic crisis?(% respondents)

13136418

111439414

1429469 2





27

25

24

10

7

6

Western Europe

Asia-Pacific

North America

Middle East and Africa

Eastern Europe

Latin America

In which region are you personally based? (% respondents)

Financial services

IT

Telecoms

Consumer goods

Manufacturing

Professional services

Healthcare, pharmaceuticals and biotechnology

Technology

Retailing

Chemicals

Construction and real estate

Energy and natural resources

Government/Public sector

Transportation, travel and tourism

Agriculture and agribusiness

Entertainment, media and publishing

Education

Logistics and distribution

Automotive

21

15

10

9

7

7

5

2

2

1

1

1

1

1

4

4

3

3

2

What is your primary industry? (% respondents)

36

10

18

9

27

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your organisation's global annual revenues in US dollars? (% respondents)




Board member

CEO

CFO

CIO

President/Managing director

Treasurer/Comptroller

Technology director

Other C-level executive

SVP/VP/Director

Head of Business Unit

Head of Department

Manager

Other

2

1

4

12

12

3

4

5

4

25

7

8

13

Which of the following best describes your title? (% respondents)

IT

Finance

Strategy and business development

General management

Marketing and sales

Information and research

Operations and production

Risk

Customer service

R&D

Supply-chain management

Procurement

Legal

Human resources

Other

33

32

31

4

3

2

31

21

13

11

9

8

7

4

4

What are your main functional roles? Please choose no more than three functions. (% respondents)

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.

Cover image - © Gary S. Chapman 2008/Getty Images

LONDON26 Red Lion SquareLondon WC1R 4HQUnited KingdomTel: (44.20) 7576 8000Fax: (44.20) 7576 8476E-mail: [email protected]

NEW YORK111 West 57th StreetNew York NY 10019United StatesTel: (1.212) 554 0600Fax: (1.212) 586 1181/2E-mail: [email protected]

HONG KONG6001, Central Plaza18 Harbour RoadWanchai Hong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: [email protected]

Staying the course: Technology decision-making in turbulent times

Business

Transcript of Staying the course: Technology decision-making in turbulent times