I just can’t wait to hear the wailing and gnashing of teeth.
The housing bubble bursts. The highly interconnected U.S. economy, overly dependent on overstated home values, buckles at the knees and is taking a standing eight-count. Stock prices are falling. Confidence in the market is waning. Global markets are impacted.
Time to batten down the hatches, stuff the money in the mattress, eat macaroni and cheese at home versus at the Macaroni Grill and otherwise cut back on the extras. The borrowed-to-the-hilt spending spree is over. Americans have run out of money they don’t really have to buy stuff they probably don’t need. Company earnings forecasts, so dependent on this consumer economy, are likely to take a hit.
Are we heading for more lean times in IT? If the past is any indication of the future, probably so.
One way to think about the current situation is to consider a car race in which just ahead of you there is a major crash with two lead cars spinning out of control. All around you all the other cars are braking madly, slowing, swerving, skidding and crashing into each other. Just ahead, you see a hole in the chaotic crash scene. You have a choice to make: slow down and swerve to avoid the other cars or punch it and blast through the hole unscathed. What would be your first reaction?
Despite the doom and gloom, some companies are in a good position, with strong balance sheets and the ability to weather a storm. And some smart companies realize that the game is often won or lost in transition and can initiate decisive action.
With this in mind, here are some IT strategies for a down market.
- Invest in deeper automation and business process improvements to improve productivity. Since input costs (energy, transportation, other raw materials) are higher and demand may be flat, many companies will need to put even more effort into improving overall corporate productivity. Trade labor for capital and increase the level and quality of IT automation wherever you can.
- Further reduce business process redundancy and business process waste within the company. It’s time to find those business units holding out and protecting their duplicate and non-strategic system and pry that system out of their hands.
- Divert cash away from nonstrategic infrastructure improvements that can safely wait a year or two and instead invest in competitive initiatives that can exploit any weaknesses in the competition.
- Move beyond labor arbitrage. Outsourcing deals based solely on labor costs should be chucked in favor of knowledge arbitrage, where the right combination of labor wages and labor knowledge is found. Improve the efficiency of the knowledge transfer and cross-company business process coordination between the company and its outsourcing vendors.
- Invest in the customer experience. Find ways of serving customers that the competitors can’t match and try to steal those customers. Improve your customer self-service options if that is what is needed or find new ways of using technology to fix customer experience problems. For example, if you have had bad system integration between the call center and the Internet channel that has been causing customer defection, invest the money to fix it now.
- If the company has been remiss in actually using customer information and analytics to compete, now may be the time to do it. While other firms freeze, well-positioned firms can better use their information assets.
- Invest in actively listening to customers better and making quick adjustments as needed. When markets shrink, the differences between competitors become sharper. In a shrinking market, a company with weaknesses will feel the pain more so than in a growing market. Companies that can quickly figure out how customers view them against the competitor and can actually do something quickly with that knowledge may be able to leapfrog their slower competitors. Aggressively use IT and business process improvements to speed up this knowledge-gaining process.
- Look for soft demand in the IT vendor marketplace and use the current conditions to find better deals on key technology. Consider reexamining any high-cost vendors for which you feel there are adequate substitutes. Time these purchases to be at the end of the vendors’ quarter and not at the end of your budget cycle.
- If your IT organization is agile, take advantage of that and move quickly in ways your competition’s IT team can’t.
Above all else, panic and fear should be avoided. This can cause companies to delay on strategic IT initiatives. IT leaders should do just the opposite. They should be on the prowl now for any quick action that can put their competition at a disadvantage.
What are your IT strategies in this market? Curious minds want to know.