Hold on Tight, We Are In For A Bumpy Ride: IT Strategies For Navigating Economic Downturn

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Hold on Tight, We Are
In For A Bumpy Ride
IT Strategies For Navigating the Approaching Economic Downturn
Table of Contents Section 1: Introduction
Section 1: Introduction The negative drumbeat in the financial media has been increasing in intensity ............................. 1 over the last several quarters. The bursting of the housing market bubble and Section 2: We've Been There Before....... 1 the subsequent seizing up of the credit markets in the US and across the globe have been the lead stories. The failure of Bear Sterns and the Federal Reserve Section 3: Yet This Time It's Different..... 2 and Treasury Departments brokering of shotgun mergers seems to have marked a turn away from the abyss of a total collapse of the financial markets.Section 4: The Situation May Yet the impact of the housing and financial market crisis seems to be spreading Not Really Be That Bleak......................... 2 to other sectors of the US economy and is likely to begin affecting a wide range of businesses. In a recent Fuqua School of Management Survey of CFOs, Section 5: Consider How Avaya 54% of CFOs said that the US is now in recession with another 24% of the Services Can Help..................................... 3 remaining CFOs expecting a recession this year. Furthermore, this same group of CFOs expected capital spending to slow to a 3.3% rise with inflation of Section 6: Summary................................. 5 1nearly 3% eating up this increase, with recovery not expected until late 2009.
For the next 12 to 18 months, we are likely to see a tightening of capital and expense budgets with a significant impact on IT projects and staffing. This paper is intended to explore some of the implications of the emerging economic downturn and to lay out prudent IT management strategies for proactively navigating through the downturn.
Section 2: We've Been There Before
An analysis of past economic downturns produces some predictable patterns in anticipating their impact on IT operations. Initial signs of trouble occur with a downturn in sales and revenue growth. As management begins to respond, one of the first steps is to begin the downward modification of annual business plans and to begin preparing investors for these revisions. The requirements of financial disclosure and regulations growing out of the last major wave of bankruptcies have sped up the management cycle for ongoing business assessment, action, and public notification.
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Simultaneously, an initial wave of cost cutting starts to occur across the entire business structure. This is likely to have three significant impacts on IT organizations. The first is a general tightening of expense budgets resulting in expense containment programs like travel curtailment and new headcount freezes. The second impact is likely to be expense and headcount reductions, initially through attrition, but followed by actual downsizing. The final impact will be delays or cancellation of capital projects, sometimes even those that have already received management approval.
Section 3: Yet This Time It's Different
As much as the cycle can be predictable during economic downturns, there are always subtle differences as the current situation unfolds. One major difference in this cycle is the fact that many firms are in the middle of a communications infrastructure upgrade cycle. Traditional TDM PBXs are reaching the end of their economic and reliability lifecycles. The last major upgrade peak was almost eight years ago with the modifications and upgrades resulting from the Y2K preparations. Most enterprises are either in the middle of or have migration plans to move to IP Telephony platforms, implementation of Unified Communication applications, and the upgrading of Call Centers to Contact Centers. Given the "middle of the river" state of this communications technology migration, IT organizations will find it even more difficult to manage the inevitable downturn in spending and tightening of resources to accomplish their missions.
It is also likely that key customers of the IT organizations such as sales and marketing and customer service, who are being pressured to hold the line on revenue generation and customer satisfaction, may actually be calling for more support and new application capabilities while IT budgets and headcounts are shrinking.
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