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It Economic Slowdown Survey C4144


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This is the results of a UK CEO study commissioned jointly by HP and BearingPoint. The study focuses on how the CIO and their organisations are impacted by the economic slowdown.

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It Economic Slowdown Survey C4144

  1. 1. IT priorities for battling the economic slowdown: UK CEO Survey | 2008
  2. 2. Contents 1 Executive Summary 3 2 CIO Considerations for Taking First Steps 11 Enhancing Customer Experience: enabled through technology, led by the business 11 IT Effectiveness: Improving performance and creating savings 14 3 About the survey 18 4 CEO Survey Results 19 Where do the challenges lie? 19 Business prospects for 2008 19 Strategic barriers to growth 20 Internal barriers to growth 21 IT Priorities to meet the challenges 22 The importance of IT 22 Top business outcomes driving IT strategy in 2008 compared to the last two years 23 Greatest impact of IT 25 Budget changes expected to meet the targets 27 Anticipated changes to headcount, operating costs, and capital expenditures 27 Anticipated budget changes in 2008 28 Strategies for reducing or containing IT cost 30 Extent to which IT cost reduction puts business imperatives at risk 32 About BearingPoint 33 About HP 33
  3. 3. IT priorities for battling the economic slowdown: UK CEO Survey 2008 1. Executive Summary Recession fears have grown over the last three quarters as the implications of the US credit crunch have deepened and spread abroad to become a multi-region contagion. With costs for commodities, especially energy, soaring as well, businesses will have to adapt quickly to mounting economic pressures in order to maintain growth and profitability. BearingPoint and HP initiated a structured review, based on a survey conducted by the Economist Intelligence Unit, of how the current economic landscape has affected the business outlook for UK CEOs and how, in turn, this will impact their expectations of the IT function. The Economist Intelligence Unit was commissioned to carry out this survey by obtaining answers to 15 key questions. This whitepaper documents the survey results stemming from this turmoil and the impact on the CEOs’ attitudes. Further, the survey examined how these changing CEO attitudes impact the role of the CIO and the IT organisation. Specifically, the survey was designed to reveal answers to the following key questions: • How will CEO priorities, in the light of the credit crunch, translate into business implications for CIOs? • How can CIOs best position the IT function for these predicted changes? • In what ways are CEOs expecting CIOs to use information technology to improve the situation? One of the findings of the CEO survey which bucked reported trends was confidence. Despite media consistently claiming that the economy looks certain to slow to dangerous levels, Britain's CEOs remain more optimistic. Whilst there was concern, the majority felt that with good planning and sensible actions the next 12 months were navigable. In fact many felt that in areas such as customer focus and cost reduction, the financial climate had simply forced them to take actions which were probably overdue. In the simplest terms, CEOs feel that their business could emerge from the present slowdown as leaner and more focused organisations better able to grasp upturn opportunities than might have been the case otherwise – although all agreed that doing nothing at this stage would have dire repercussions. CEOs noted the need to prioritise investment in enhancing the customer experience, displaying their appreciation of the speed with which today’s customers are able to influence their business’ fortunes. Customer to customer communication on the internet, and in particular via social networking sites, means that positive feedback directly drives new customer acquisition. Conversely, poor feedback can quickly translate into a sharp drop in sales and subsequent fall in share price. UK CEO Survey 2008 | 3
  4. 4. IT priorities for battling the economic slowdown: UK CEO Survey 2008 CEOs rightly recognise that the need to turn customers into ‘advocates’ of their products and services is all the more critical during a period of economic slowdown. During these periods, opportunities for driving customer acquisition, retention and growth are critical. This is made all the more critical with the proliferation of channels available to support customer interaction and the enhanced information flow this engenders. Business and IT must collaborate to deliver a differentiated customer experience supported by the insights and technologies, which enable seamless interaction with an organisation, producing a relevant and emotional connection. Rather than embarking on large-scale implementations of new solutions, focusing on the delivery of tactical solutions that support an overall customer strategy will allow the CIO to demonstrate a clearer return on investment (ROI). An inevitable reaction to market realities includes reducing operational costs. As the CEO and the senior leadership team review and formulate plans to reduce cost, technology costs will be a leading component to manage through most aspects of the business. The CIO will need to work closely with business unit leaders to implement business process efficiencies and bring new and improved products to market quickly. Internally, the CIO must focus on IT process efficiencies, cost transparency and cost take-out to achieve cost reduction goals while maintaining business alignment through managed IT demand. More than ever before the relationship between CEO and CIO will be critical as CEOs hold IT responsible for delivering key capabilities and enhancements to the business. The core results of this survey indicate CEOs: • Have expressed surprising confidence for 2008 outcomes but are cognisant of the economic situation driving their organisations to re-plan 2008. • Understand this challenging environment has provided context and opportunity to execute against customer experience and cost focus objectives. • Depend on CIOs to support achievement of their goals and deliver the firms’ success because they recognise technology’s importance in supporting every part of their operations. The major implications for CIOs and their respective IT organisations: • CIOs will be held accountable to deliver more advanced customer focused capabilities and productivity enhancements. • CIOs will be held accountable for reducing firm-wide operations spend. This includes controlling cost within the IT organisation as well as managing IT demand across the business and enhancing business process optimisation. • CIOs should expect heightened scrutiny of the value that IT provides to the business given the overall contraction of firm-wide spend. 4 | UK CEO Survey 2008
  5. 5. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Key CEO Survey Findings Our initial hypothesis forecast that the dramatic changes in the economic climate would force firms to review and adjust plans, investments, and activities for 2008. The following results provide a high level interpretation of the survey’s key findings. Surprising optimism by our surveyed CEOs… Almost half of our surveyed CEOs view prospects for business in 2008 as good or very good. 1.1 How does your organisation view the prospects for business in 2008 within the UK, Europe and across global marketplaces? UK Europe Globally 0 20 40 60 80 100 % Very good Good Indifferent Poor Very poor Not applicable Even with the economic news to date, our UK CEOs are optimistic they can chart a course for their organisation’s success. While course corrections were necessary in terms of adjusted focus, resources, and specific actions, they communicated confidence in moving forward and coming out of this period with stronger, more capable organisations. For firms with EMEA and/or global footprints, the optimism was even greater. UK CEO Survey 2008 | 5
  6. 6. IT priorities for battling the economic slowdown: UK CEO Survey 2008 However, no one foresaw the “credit crunch” coming… CEOs name macroeconomic pressures as the greatest strategic barrier to growth in 2008. 1.2 Which of the following represent the greatest strategic barriers to growth in 2008 for your business within the UK? Macroeconomic pressures Rising costs of energy and raw materials Decline in consumer spending power Lack of available local talent Tax and regulatory pressures Increased competition from international rivals Downward pressure on prices Increased competition from domestic rivals High labour costs in local market Market saturation Lack of capital Other 0 10 20 30 40 50 % By far the greatest barrier to growth in 2008 is seen by CEOs as being macroeconomic pressures. Yet, just two years ago macroeconomic risk was ranked by CEOs as only the 5th most worrying risk for business (Source: Corporate Priorities for 2006 and Beyond, the Economist Intelligence Unit). In addition to the “credit crunch”, rising energy costs and the decline in consumer spending contribute to the negative macroeconomic pressure. The rapidity with which the economic climate has changed clearly highlights the need for business flexibility in order to deal with an unpredictable marketplace. CEOs will demand that CIOs enable the rapid deployment of business strategies re-drawn to combat a challenging environment. In addition, CIOs will need to place ever greater efficiency targets on their own IT organisation in response to tightening budget constraints. 6 | UK CEO Survey 2008
  7. 7. IT priorities for battling the economic slowdown: UK CEO Survey 2008 But the reactions are clear… In this economic climate, survival has moved the CEO to emphasise reconnecting with their customers. 1.3 What are the top business outcomes that will drive your company’s IT strategy in 2008? Select up to three. Improving the customer experience Cutting operations costs Enabling new product/service development Improving quality of management information Increasing business process quality Increasing speed to market Business resilience Meeting regulatory compliance Reducing environmental impact 0 10 20 30 40 50 60% 55% of CEOs placed improved customer experience as the top priority business outcome for IT strategy in 2008. As noted in fig. 1.2, 30% of surveyed CEOs identified the decline of consumer spending power as an additional barrier to growth in 2008. In other results, although spending reductions are anticipated across the business, CEOs do expect to address these challenges, with marginal increases in 2008 budgets for strategically important areas. 51% of CEOs forecast an increase in customer service budgets, 50% forecast an increase in marketing and sales budgets and 53% forecast a rise in IT budgets (see fig. 4.9). While CEOs are expected to direct their businesses to become more efficient and to contract their overall discretionary investment, it is clear from the survey results that CEOs will renew focus on, and in some specific areas increase budgets for, improving their business’s interaction with the customer. In the current, difficult climate the CIO’s contribution to a green agenda will virtually be placed on hold, while CEO attention focuses on customers and costs. UK CEO Survey 2008 | 7
  8. 8. IT priorities for battling the economic slowdown: UK CEO Survey 2008 CEOs also see high operational and workforce costs as being the greatest internal barriers to growth in 2008. 1.4 Which of following represent the greatest internal/operational barriers to growth in 2008 for your business within the UK? Select up to three. High operational costs High workforce costs Internal complexity of business Inability to adapt quickly to business change Supply chain issues Inability to integrate sales channels High workforce turnover Poor risk / crisis management Poor quality of customer service Other, please specify 0 10 20 30 40 50% Surveyed CEOs identified high operational costs (50%) and high workforce costs (39%) as the two leading internal barriers to growth in 2008. As a response, 47% of CEOs believe that IT will play a critical role in overcoming these high costs (see fig. 4.7). CIOs will be asked to deliver efficiencies in their ongoing costs as well as assisting the broader organisation in re-focusing the (likely reduced) investment budget. More than one third of the CEOs expect firm-wide reductions in permanent staff headcount and almost half expect reductions on temporary and/or consultant staff headcount (see fig. 4.8). IT will need to focus on enabling increased staff productivity as part of the solution delivered to the business units. 8 | UK CEO Survey 2008
  9. 9. IT priorities for battling the economic slowdown: UK CEO Survey 2008 As a result, the CIO and the IT organisation are crucial assets for the CEO to enable the business to thrive in this challenging new economic climate. 1.5 How important do you think IT will be in helping the organisation overcome these challenges you face? Very important Important Not very important 0 10 20 30 40 50 60% An overwhelming 87% of CEOs agreed that IT will be important or very important in helping the organisation overcome all of these challenges. In other results, less than 1 in 5 CEOs will reduce IT headcount. Most CEOs will ensure adequate IT resources are available to address business challenges. Nonetheless, it is clear that CEOs will expect the IT organisation to contribute to overall spending reduction initiatives. Whether it is enhancing the customer experience, increasing the focus on sales and marketing, or delivering customer support efficiently, the CEO clearly sees the CIO and the IT organisation as critical to the customer value chain. Together, these expectations read as a “coming of age” statement for the CIO and the IT organisation. CEOs broadly expect the CIO to “step up” to the challenges of this economic climate, closely engage with business unit leaders, and deliver capability crucial for their organisation’s survival during this period. UK CEO Survey 2008 | 9
  10. 10. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Priorities for achieving CIO goals Engage the Business Partners In their recent book, “The New CIO Leader”, Marianne Broadbent, Gartner Fellow, and Ellen S. Kitzis, Group VP of Gartner’s Executive Programs state that “60% of your new areas of focus are on the business side, not in your IS group.” Bearing this in mind, successful CIOs will proactively reach out to their business partners and support the CEO’s firm-wide goals along these specific objectives: • Connect to your Customer – Work closely with your business unit leaders to partner in renewing customer focus and investment – first with the aim of wringing value from existing CRM systems and secondly to apply customer experience management solutions that deepen the salesforce’s understanding of customer preferences, needs and overall relationship with the organisation. • Consolidate and Optimise – Most organisations have not reached an optimum level of consolidation nor do they use strong standards consistently in practice. • Innovate and Collaborate – Do not leave your firm’s future to chance. Organise your innovation resources, employees, business partners, and customers to drive targeted innovation. Transform Your IT Organisation Successful CIOs will drive their IT organisation to transform its capabilities and cost structures. Mark Hurd, CEO of HP, was recently interviewed by Forrester’s Laurie Orlov, who summarised his expectations of the CIO and the IT Organisation: “He believes that HP wants much of the same from its own IT that its customers want from their IT, which includes driving maintenance as a percentage of IT spend from 70% to 20%, halving IT cost, providing instant access to information across the corporation, lowering risk, and producing a measurable suite of products along the way.” Focusing on the following objectives will begin this transformation: • IT Process Optimisation – Optimise your IT organisation to achieve process efficiencies through structured process frameworks (i.e., IT Infrastructure Library® (ITIL®)) and process optimisation methodologies (i.e., Lean for Service). • IT Cost Take-Out – Use structured methodologies to reduce/remove ongoing costs and manage your suppliers more closely to free up investment funds. • Programme Management – This is not just about reporting. This discipline will be the primary capability the CIO leverages to re-plan and re-mobilise in order to meet the firm’s challenges. • Information Management – Monitor levels of data quality, the latency of information and the dissemination of information to the right place at the right time at the right price. Integrate customer data and maximise CRM investments. • IT Governance – Get this aspect right and the enormity of the other challenges begins to become manageable. 10 | UK CEO Survey 2008
  11. 11. IT priorities for battling the economic slowdown: UK CEO Survey 2008 2. CIO Considerations for Taking First Steps Enhancing Customer Experience: enabled through technology, led by the business Against a back-drop of ever increasing customer to customer communication, businesses are becoming ever-more aware that both good and bad customer experiences can be transmitted swiftly to an audience of millions. Customer adoption of Web 2.0 technologies has amplified the volume and impact of each individual opinion while shrinking the time it takes for that opinion to influence the purchasing decisions of many other customers. Consequently, providing experiences that are distinctive and valued by customers is the best source of sustainable competitive differentiation in customer management today. Until recently, the customer experience was defined “inside out” based on product features and perceived benefits, now the balance has swung to “outside in” thinking with much greater emphasis placed on the customers’ emotional connection with a combined product and service offering. Creating this emotional tie is key to making your customers proactive advocates. Success in achieving such a position depends on deep customer insight and segmentation informed by customer intelligence derived from the information within the organisation and from third party sources, crucially supplemented by primary research and trade-off analysis. Building on this customer intelligence foundation and by consolidating competitor insight, the next step is to architect an integrated proposition across marketing sales and service that embeds distinctive and seamless customer experience at every touch-point of every channel which establishes and sustains emotional engagement. Only at this point is it appropriate to consider how to bring the experience to life in terms of people, process, data and technology changes across the full customer lifecycle. Technology therefore supports the strategy and architecture phase of customer experience design by providing the required source of data based customer intelligence through the use of appropriate information management and analytic tools, as well as the implementation phase, by enabling customer experience engineered processes and empowering customer experience savvy employees. Too often in the history of CRM, technology has been deployed without sufficient upfront business engagement and direction. UK CEO Survey 2008 | 11
  12. 12. IT priorities for battling the economic slowdown: UK CEO Survey 2008 2.1 Please rate your company’s performance relative to each of the following CRM categories (1: poor / 5: outstanding) Source: Forrester Marketing* (n=1,482) 37% 28% 27% 8% Customer analytics‡ (n=622) 36% 27% 31% 6% Customer service† (n=862) 35% 22% 26% 17% Indirect sales† (n=845) 33% 27% 21% 19% Customer data management ‡ (n=633) 31% 30% 34% 4% eCommerce* (n=293) 30% 23% 27% 20% Customer strategy§ (n=635) 25% 30% 40% 5% Technology § Infrastructure (n=1,035) 23% 25% 45% 7% Field service‡ (n=293) 22% 13% 13% 52% People management§ (n=1,213) 20% 32% 44% 4% Direct Sales* (n=720) 17% 29% 35% 18% Poor/below average Average Very good/outstanding Don’t know *Base: 73 business and IT decision-makers †Base: 58 business and IT decision-makers ‡ Base: 55 business and IT decision-makers § Base: 74 business and IT decision-makers (percentages may not total 100 because of rounding) The chart (above) from industry analyst, Forrester’s CRM Best Practices Adoption report, 2008, illustrates significant performance shortfalls in the implementation of key CRM functions. Fundamentally, the core technology investments underlying the CRM solutions are sound; however the full ROI has not yet been achieved. CIOs need to invest more time with business unit leaders to identify opportunities where the appropriate use of technology can help to enhance and simplify business processes to meet customer expectations. Working closely with the business to articulate the technological requirements clearly within the overall customer strategy that is driving a differentiated customer experience is critical so that the CIO is able to: • Deliver rapid value to the business by identifying and delivering tactical improvements, underpinned by sound business cases • Structure these tactical investments are structured to integrate with existing CRM solutions supporting longer term enhancement of CRM functionality and insight management Successful customer experience starts with customer insight and must be driven strongly and sponsored by the business across marketing, sales and service. More than ever the CIO must work with marketing sales and service colleagues, firstly to illustrate what is possible, but then to insist and ensure that the business takes the lead and that technology decisions are deferred until the business is in a position to make informed, value based choices through a clear customer strategy that has customer experience at its heart. 12 | UK CEO Survey 2008
  13. 13. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Using Real Time Marketing to drive revenue and enhance customer experience There is a growing trend to use Real Time Marketing supported by “decisioning” engine solutions to enhance the customer experience and drive revenue through up sell and cross sell opportunities. These technologies help empower customer-facing employees by creating dynamic messaging that can guide customer interactions by actively suggesting which offer or combination of offers a customer is likely to want. Interaction management of this nature, mines thousands of considerations, messages and potential interactions, however, extensive cultural analysis of how employees will react to such a system cannot be overstated. Successful deployment depends on ensuring employees are comfortable interacting with the system and trained to incorporate the information effectively in their dialogue with the customer. With so many sources feeding information into a decisioning platform, establishing a content profile for each customer is essential. This profile will help determine the importance and impact of various influences on the customer relationship, from previous purchases, attitudes, behaviours and interactions to external influences such as government regulations and industry shifts. This profile must also support dynamic content taking into account major changes in a customer’s profile, such as moving to a new city or taking a new job. This is key so that a response to current needs and desires can be accurately predicted. To work effectively, the decisioning engine needs information feeds from all sales, marketing and service sources, supplemented by other sources such as acquired insights and primary research. Business rules that effectively gather, incorporate and arbitrate attributes from these various systems need to be set in place. Most importantly these rules will also recognise that in order to become truly customer centric, customers must be free to develop, discover and drive their own customer interactions and journey. This journey is fluid and not tied to a particular product or business offering. During times of economic slowdown, opportunities for driving customer acquisition, retention and growth are critical. Business and IT must collaborate to deliver a differentiated customer experience supported by the insights and technologies which enable seamless interaction with an organisation combined with a relevant and emotional connection. UK CEO Survey 2008 | 13
  14. 14. IT priorities for battling the economic slowdown: UK CEO Survey 2008 IT Effectiveness: Improving performance and creating savings Today, IT is the primary delivery vehicle for products and services across a wide number of industries. We have moved from paper based enablement to electronic enablement. However, CIOs face a huge challenge in ensuring the business maintains high service levels and supports business growth while ensuring the underlying cost structure improves rather than erodes profitability. Improved IT efficiency tackles both sides of this equation and depends on transforming the underlying cost structure in a way that delivers long term, sustainable improvements. This simply cannot be achieved by a series of one-off cost reduction initiatives. Cost reductions must also be managed in support of maintaining alignment between business and IT plans. These efforts will force CIOs to transform technology cost structures as well as provide fundamental cost transparency to the business. IT cost take-out and IT cost transparency enable the CIO and the IT organisation to target inefficiencies and sustain those cost efficiencies through ongoing positive business behaviour. Positive behaviour is reinforced by clear understanding of value aligned to cost. The first critical feature of improving IT effectiveness is IT cost take-out. Successful IT organisations will use structured cost take-out methodologies to identify “business as usual” costs and identify efficiency opportunities to achieve a smaller, sustainable cost base while maintaining a superior level of service to the business. These opportunities include: • IT Process improvements (Both the ITIL process framework and the Lean 6 Sigma for Service process optimisation methodology can be employed to achieve related process efficiencies.) • Outsourcing • Off-shoring • Consolidation 14 | UK CEO Survey 2008
  15. 15. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Resulting from this analysis will be prioritised business cases and roadmaps describing the project sequencing and investment flows. 2.2 Key steps to IT cost take-out IT Infrastructure & Processes Physical Infrastructure Services & Processes Data Center Service Desk Server and Storage Processes Applications information Platform Business Case Evaluation Cost Take-Out Business Case Business Driver and Framework Identification Assumptions and Risk Analysis Analysis & Modelling Executive Summary Detailed Modular Analysis Benefit and Payoff Analysis Low hanging fruit Strategy Cost Efficiency indentification Alignment Alignment Alignment The Business Case evaluates the IT environment, and shows cost improvement steps in a modular and measurable way. The Business Case results in an implementation roadmap. Implementation Roadmap Assessment Service Desk Service Desk Service Desk Strategy Foundation Improvement AM Planning Assessment AM Install AM Production Migration Data Center Strategy EMEA Planning EMEA Install EMEA Production Migration Standardization Planning Standardization Implementation Server and Infrastructure Server Conso. US/FR/GER Apps. Serv. Conso. RoW Apps. Serv. Conso. Storage Legacy System Consolidation Germany File Server Storage GER/FR/US Storage Conso. RoW Storage Conso. Global Problem Mgmt Regional Problem Mgmt Global Monitoring Regional Service Monitoring Processes Global Change Mgmt Regional Change Mgmt Global Asset Management Regional Asset Management Global Release Mgmt Regional Release Mgmt Portal Information Design & Pilot Portal Global Global Platform Implementation Deployment Extension 01/y1 01/y1 01/y2 01/y2 01/y3 01/y3 01/y4 UK CEO Survey 2008 | 15
  16. 16. IT priorities for battling the economic slowdown: UK CEO Survey 2008 The second critical feature in IT effectiveness is the implementation of cost transparency. The first step to cost transparency is capturing an accurate picture of existing costs based upon usage of IT services, then relating those usage costs to applications that the business uses to perform a business process or function. This involves taking an end to end perspective of costs and understanding the relationship between all the underlying IT services required to deliver a specific business outcome. For example, within a bank a CIO would need to piece together the cost of the people and the tools that they use (phone, 2.3 Sustaining IT cost transparency desktop etc.), hardware, software, network and facilities that relate to an application such as ‘mortgage servicing’. The CIO then needs to Technology Service Catalogue understand the impact that application has on the Service Levels, Service Pricing specific business area and how this affects the overall performance of the bank. By providing IT cost transparency a CIO is able to avoid being just the “IT order taker” and is better equipped to educate business leaders Key Cost across the organisation about the cost Driver-Based Planning Technology Costing and Forecasting Management and Resource implications of their own decisions. Components Consumption Metrics As most IT organisations serve multiple business units, it is important that communication must include the aggregated demand and its effect on aggregated resources Technology Chargeback / in order to be effective. Aggregated demand is Business Line Invoicing for most valuable when demand from projects (strategic Technology Services demand) and service requests (operational demand) can be mapped to the aggregated resources. This enables a complete picture of demand and resources to be communicated. With this common understanding in place, it becomes much easier for the CIO to manage demand for IT services because the business leaders understand specifically how their decisions impact their costs for IT services and how multiple demands can come into conflict necessitating executive decisions. Most firms without tightly linked demand management generate false economies for the IT services. The coupling of demand management with costing secures the ability to predict future costs for IT services and the ability to save money by encouraging more efficient use of IT services. Effectively managing demand has a high impact on overall costs. For example, if during peak times the mainframe utilisation is 90%, decisions can be made to influence behaviour so that programmes run during non peak times and also so that non essential activities, such as testing, do not occur during peak times. Managing demand this way can produce significant cost avoidance. Facilitating the conversation with the business to generate demand forecasts and assimilating those forecasts with consumption models enables the assembly of realistic business/IT plans. These plans will begin to ensure capacity is in place when needed and will help to combat the need for CIOs to over spend on excess capacity in high cost areas such as networks and mainframes simply in order to cope with highly irregular spikes in system usage. IT cost transparency provides information to business so that they can make decisions. For example, if a business uses three different systems for loan origination because it has acquired other companies over the years, the total and per transaction costs can be identified and the business along with IT can rationalise applications in order to achieve significant cost reductions. This cost transparency also enables the IT organisation to identify efficiency opportunities (automation, reduction of root cause analysis time, reduction of Mean Time to Recovery, etc.), generate targeted, credible business cases, and prioritise the resulting opportunities for funding. 16 | UK CEO Survey 2008
  17. 17. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Importantly, IT cost transparency allows CIOs to apply industry or internal benchmarks to the costs of discrete components involved in delivering IT and highlight where cost reduction efforts will deliver the greatest return. In turn this facilitates the prioritisation of plans to improve efficiencies for the future and free-up budget to re-invest in growth. In many instances, however, the answer to reducing an IT cost issue will not rely solely on the IT function but on process and policy changes too. For example, how data is classified has a direct impact on data storage costs. If a substantial amount of data is unnecessarily classified as tier one, organisations will bear the burden of paying premium prices for this. Changing policies and procedures to classify data appropriately could significantly reduce costs permanently. Rapidly measuring IT costs puts a strong foundation in place. Continuous monitoring of how changes impact the business will also make it possible over time to forecast the bottom line implications of scaling capacity up and down to match changing business volumes. More importantly it will provide information to business leaders that allows them to understand the true IT service costs of decisions that they are making. As the environment matures, the IT organisation can focus on evolving from traditional service level definitions to service levels which measure actual customer experience in business impact terms. This will provide feedback to further refine investment and better align IT activities to creating business value. Another area in which costs can be tackled swiftly is the approach to purchasing. Ensuring a contract supports a best in class unit rate may not always be enough. Once again the focus on the business outcome provides the context for potentially moving to a managed service contract. This is particularly notable when examining the cost of labour. Global sourcing in which a captive offshore operation or fully outsourced operation is part of the delivery model is a key cost lever for many of today’s businesses. However, optimising the use of this labour arbitrage may mean moving away from using third party vendors as contingent labour because this can lead to a steady climb in the cost of paying high hourly rates. Moving to a managed service could bring this down considerably. Finally, for methods like IT cost transparency to have sustained impact, governance models must be evolved. The CIO and the business unit leaders must have ongoing formal interaction which will enable both the management of cost in the short term as well as the management of how new technologies, services changes, and other cost elements are integrated into the service portfolio over time. UK CEO Survey 2008 | 17
  18. 18. IT priorities for battling the economic slowdown: UK CEO Survey 2008 3. About the survey IT priorities for battling economic slowdown: UK CEO survey is a joint BearingPoint/HP white paper, based on a survey conducted by the Economist Intelligence Unit. BearingPoint and HP crafted 15 questions designed to explore the major challenges, barriers, and priorities faced by CEOs in 2008 within the UK, Europe and globally. The Economist Intelligence Unit used these questions to survey 74 CEOs of UK-based companies during the first half of 2008. We would like to thank the respondents for their time and insight. Respondents represent a wide range of industries, including financial services, entertainment, media and publishing, construction and real estate, manufacturing, transportation, travel and tourism and retail. All companies surveyed had revenues of at least US$100m. Half of all firms had revenues of more than US$500m, with about one in four firms having revenues of at least US$1bn. The largest number of survey respondents (32%) was drawn from the financial services sector. 3.1 What is your primary industry? Financial Services Entertainment, media and publishing Transportation, travel and tourism Construction and real estate Manufacturing Retailing Consumer goods Telecommunications Water / Energy Utility Chemicals IT and technology Logistics and distribution Oil and gas / natural resources Automotive 0 5 10 15 20 25 No. of CEOs 18 | UK CEO Survey 2008
  19. 19. IT priorities for battling the economic slowdown: UK CEO Survey 2008 4. CEO Survey Results Where do the challenges lie? Business prospects for 2008 Question: 4.1 How does your organisation view the prospects for business in 2008 within the UK, Europe and across global marketplaces? Results: UK Europe Globally 0 20 40 60 80 100% Very good Good Indifferent Poor Very poor Not applicable Observations: Surprisingly UK CEOs have a remarkably positive outlook for 2008 business prospects even while they strive to negotiate these economic difficulties. Despite the news of mounting concern over the economy, the majority of CEOs are positive in their outlook for business across different regions. This indicates the CEOs surveyed still have confidence in their ability to manage through this period. However, amongst those CEOs who feared prospects would worsen confidence in the UK was lower than for Europe or other parts of the globe. All companies – not just financial institutions – are now feeling the impact of the credit crisis directly. One consequence of the credit squeeze is that borrowing is more expensive – particularly for homeowners. Inevitably such a scenario is likely to have an effect on consumption. In turn, consumer behaviour could squeeze companies’ sales and profit margins unless firms have a clear strategy for being able to counteract this squeeze. UK CEO Survey 2008 | 19
  20. 20. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Strategic barriers to growth Question: 4.2 Which of the following represent the greatest strategic barriers to growth in 2008 for your business within the UK? Select up to three. Results: Macroeconomic pressures Rising costs of energy and raw materials Decline in consumer spending power Lack of available local talent Tax and regulatory pressures Increased competition from international rivals Downward pressure on prices Increased competition from domestic rivals High labour costs in local market Market saturation Lack of Capital Other, please specify 0 10 20 30 40 50% Observations: Macroeconomic pressures are seen as the biggest obstacles to growth for both small and large firms. Macroeconomic pressures were seen as the greatest strategic barriers to growth in 2008 for businesses within the UK by 43% of respondents. Macroeconomic factors include growing economic uncertainty, with banks taking fewer risks, at the same time the cost of wholesale borrowing on money markets remains high along with rising oil prices and crop prices. The rising cost of energy and raw materials is the second largest barrier. These two points contribute to the third highest barrier to growth, which was the decline in consumer spending power. Consumers are now reprioritising spending plans in light of increasing mortgage repayments, rising fuel costs and higher food prices. Strongly linked to this are local fears of rising levels of consumer debt, with 30% of CEOs surveyed identifying a decline in consumer spending power as one of their top-three concerns. Heavy discounting has failed to prevent a slump in sales on the high street, and there is a real fear that the gloom evident in the retail sector could spread to other areas. The same number of respondents (30%) believes that the rising cost of energy and raw materials is also likely to take its toll on businesses and their earnings, forcing companies to increase prices. 20 | UK CEO Survey 2008
  21. 21. IT priorities for battling the economic slowdown: UK CEO Survey 2008 An example of how these barriers to growth are starting to impact the UK is in the services sector. The slowdown in financial services has been well publicised and the UK is also likely to see slowdown in the broader services sector. The Confederation of British Industry ( reported that ‘levels of business volumes and values remained weak for the sector as a whole, and neither consumer nor business services firms are positive about business expansion over the coming year. They have also become more concerned about their ability to raise external finance and the cost of doing so.’ Fears of a job squeeze are also reflected in the survey: 28% of CEOs believe that the lack of available local talent will be a major factor hampering future growth. Indeed, two of the major problems that UK businesses will contend with in 2008 are the shortage and cost of talent. This is especially true for those companies looking to bolster talent in the IT department. The number of graduates in the UK with IT-related degrees has declined steadily over recent years, while demand for IT skills has increased. Internal barriers to growth Question: 4.3 Which of the following represent the greatest internal / operational barriers to growth in 2008 for your business within the UK? Select up to three. Results: High operational costs High workforce costs Internal complexity of business Inability to adapt quickly to business change Supply chain issues Inability to integrate sales channels High workforce turnover Poor risk / crisis management Poor quality of customer service Other, please specify 0 10 20 30 40 50% Observations: High operational related issues such as integration and workforce costs continue to be top concerns. Reducing day-to-day operational costs (50%) and optimally managing workforce costs (39%) continue to be the biggest areas of concern for our respondents. The challenge for CIOs is how to reduce operational costs in order to increase the budget for innovation and new projects. The internal complexity of business (36%) is also seen as a barrier to internal growth. In addition, the inability to adapt quickly to business change (27%) when processes and IT are not aligned will mean that many organisations will encounter a number of risks, such as problems in tracking project or delivery status, budget overruns due to unforeseen technical obstacles, or inability to adapt readily to evolving business needs. UK CEO Survey 2008 | 21
  22. 22. IT priorities for battling the economic slowdown: UK CEO Survey 2008 The survey also found supply chain issues (26%) continue to be a constraint. Much of the success of a firm’s supply chain hinges on competent procurement practice. Procurement solutions that help companies sustain margin improvements are built by implementing leading industry practices across the enterprise, including IT. BearingPoint’s experience indicates savings in the range of 10% to 20% can be reasonably expected by most organisations. The inability to integrate sales channels efficiently (19%) noted by CEOs is a clear call for improvement with the help of IT. CIOs will need to adapt existing IT infrastructure in order to support constant change in sales channels. Respondents were also acutely aware of a high workforce turnover (16%). Reducing turnover and retention of key personnel remains a key area to ensure that organisations are able to have individuals who are able to adapt to change continuously. IT Priorities to meet the challenges The importance of IT Question: 4.4 How important do you think IT will be in helping the organisation overcome these challenges you face? Results 36% 51% 12% 0 20 40 60 80 100% Very important Important Not very important Observations: The role of IT continues to become increasingly important to business success. The survey shows that the IT department will play a crucial role in helping companies meet future business challenges, with 87% saying that it will be either very important or important. The significance of IT is further recognised by the fact that it tops the list of areas where budgets are expected to increase moderately or significantly during 2008 (see 4.9), compared with 2007, with 53% of respondents choosing IT. Out of this reasoning, HP undertook very recently a major IT transformation. Randy Mott, HP Executive Vice President and CIO, stated: “Our priorities were about getting better information for the company–so that the business executives could make informed decisions–and driving better efficiencies and applications for the business. It was about transforming IT to simplify the way we go to market, the way we support our customers, and the way we engage with and help our customers do their business.” Whilst CEOs want to reduce operational cost, they see IT investment as essential in meeting their business goals and therefore seek to optimise and more tightly manage the IT investment process rather than curtail it. 22 | UK CEO Survey 2008
  23. 23. IT priorities for battling the economic slowdown: UK CEO Survey 2008 IT process efficiency and control is therefore an imperative for CIOs, who will need to adopt an effective portfolio management stance to meet these strategic challenges according to business priorities, and without being seen as adding cost unnecessarily. Top business outcomes driving IT strategy in 2008 compared to the last two years Results: 4.5 What are the top business outcomes that have driven your company’s IT strategy over the last 2 years and what will they be in 2008? Select up to three. Improving the customer experience Cutting operations costs Enabling new product / service development Improving quality of management information Increasing business process quality Increasing speed to market Business resilience Meeting regulatory compliance Reducing environmental impact 0 10 20 30 40 50 60% 2008 Past 2 years Observations: Using IT to improve the customer experience is now the number-one priority on the agenda for CEOs, with 55% of respondents saying that this will be the top business outcome that is likely to drive their IT strategy in 2008. Retaining and increasing business from existing customers can be linked to improving quality of management information to answer such questions as: • How many customer cross- and up-sell opportunities exist? • Which are your most profitable customers and which are you losing money on? • How can you improve customer acquisition and reduce cancellation rates? UK CEO Survey 2008 | 23
  24. 24. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Although many firms have initiated significant investments in CRM technology, most firms have yet to capture full value of those investments. Efforts to refocus and execute strategies targeted at specific objectives, workforce, efficiency, cost, etc. are needed or underway. Next generation CRM implementations will focus on delivering customer intelligence (CI) capability. Newer CI technology allows decision makers to collect, analyse, and model consumer data, across all channels, offering them faster, more accurate, more predictive, insightful, and relevant customer information. Across all industries organisations need to expand their definition of CI to include predictive analytics, decision modelling, real-time decision engines, combination of structured and unstructured data, as well as support for decision making, collaboration, and workflow management in order to create an “on-demand” analysis tool that supports business processes. The need for this next generation capability is further underscored by the fact that 19% of CEOs (see fig. 4.7) noted difficulties in their organisation’s ability to integrate sales channels. Improvement of quality of management information (35%) is also seen as vitally important as greater emphasis is made to increase business effectiveness by increasing the value of high quality information assets. Information quality problems cause business processes to fail. 28% of the respondents also placed greater emphasis on increasing business process quality through use of IT. Business process automation technologies are being increasingly used by many companies to improve the efficiency of both internal processes as well as delivery of web based customer services. Only 20% of the respondents also saw business resilience as an important factor affecting IT strategies. Nonetheless IT is vital in ensuring organisations’ business operations to be prepared, adaptable and responsive to internal or external dynamic changes – opportunities, demands, disruptions or threats. CEOs may be underestimating the impact that IT could have on helping their organisations meet environmental targets. Just 14% of respondents said environmental factors are driving their IT strategies. Despite this, ‘green IT strategies’ can deliver rapid results, including power saving and recycling and flexible working and teleconferencing to grid computing and virtualisation. 24 | UK CEO Survey 2008
  25. 25. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Greatest impact of IT Question: 4.7 In which of the following will IT have the greatest impact in terms of its ability to help overcome these challenges? Select up to three. High operational costs Internal complexity of business Supply chain issues Inability to adapt quickly to business change High workforce costs Poor quality of customer service Inability to integrate sales channels Poor risk / crisis management High workforce turnover Other, please specify 0 10 20 30 40 50% Observations: CEOs see IT as having most impact in the area of reducing operational costs. Given that 53% of respondents also plan an increase in their IT budgets (see figure 4.9), and 87% say that IT will be important or very important (see 4.4) in addressing the challenges faced by the business in 2008, there is a clear strategy of investing in IT in order to achieve these savings. IT can reduce costs by enabling simpler business processes. Given that the business processes are automated or facilitated by the underlying IT systems, simplification of these systems is critical. Successful simplification requires IT governance at an enterprise level and the role of the group CIO is pivotal in encouraging, enabling, and facilitating this process. Today services companies as well as manufacturers rely on a sophisticated supply chain. Even the most significant services are themselves comprised of sub-services, infrastructure, and support, frequently provided by sub-contractors to the primary service provider. Awarding these sub-contracts can be a significant part of the business strategy for maintaining competitive advantage. Being able to integrate IT systems effectively within a single organisation has proved to be a great challenge for many firms. Achieving integration across multiple tiers of companies in a supply chain is a much bigger challenge. Many companies have high costs of doing business due to having to maintain separate and different technical infrastructures for communicating with each of their suppliers or customers. Interoperability should not be taken for granted. UK CEO Survey 2008 | 25
  26. 26. IT priorities for battling the economic slowdown: UK CEO Survey 2008 The IT function has its own supply chain. This is particularly evident in functions that consider their outsourcing or offshoring partner as part of the supply chain delivering IT change to the business. Solutions deployed by IT in helping the business meet its supply chain challenges might also therefore be considered by IT itself when managing its suppliers. For example, it is not uncommon for IT services or contracts to be offered through net-market style portals, or awarded through a Dutch auction. Traditional bespoke software development results in IT systems that are usually fairly brittle and require significant time to change. These changes often result in adding layers of complexity to the application that can erode its performance and maintainability over time, increasing the cost and time to change still further. Many companies are moving towards implementing technology solutions like service oriented architectures (SOA) to enable easier re-engineering and leveraging of business services and technology components. Implementation of business process management systems (BPMS) could also provide the next step in improved business agility by putting control of technology automation of business processes back in the hands of the business. 26 | UK CEO Survey 2008
  27. 27. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Budget changes expected to meet the targets Anticipated changes to headcount, operating costs, and capital expenditures Question: 4.8 What changes to your company’s headcount, operating costs and capital expenditure do you anticipate having to make in 2008, compared with 2007? Results: Headcount (permanent staff) Headcount (temporary / contract staff) Operating costs Capital expenditure 0 20 40 60 80 100% Significant Moderate No Moderate Reduction Reduction Change Increase Significant Don’t Increase Know Observations: Business as usual expenditure may become a higher priority than investment in change programmes with 39% of respondents forecasting no change in capital expenditure. Increasing energy costs and wage costs may be a factor in slightly more respondents reporting an increase in operating costs (40%) than anticipate a decrease (36%). Slowing demand for non-essential programmes and services may account for 46% of respondents forecasting a reduction in temporary/contract staff. 31% of respondents were planning an increase in permanent staff against only 23% planning an increase in temporary/contract staff. The need for differentiation through innovation and high quality service experiences in order to encourage customers to remain loyal as well as entice new consumers into the fold is increasing as a consequence of the credit crunch impact on consumer spending. This challenge is exacerbated by the lack of local talent experienced by firms when recruiting. The rate of hiring overall is likely to be flat, or declining, when compared with 2007. Nearly two-thirds of companies surveyed (61%) expect no change in budgets allocated to human resources in 2008. About one-third (34%) of CEOs polled say that there will be a significant or moderate reduction in headcount of permanent staff (with a further 35% expecting no change in the overall number); and nearly half (46%) saying that there will a significant or moderate reduction in numbers of temporary staff (with another 30% expecting no change). Furthermore, high workforce costs were named as the second-biggest internal/ operational barrier to growth for 2008 (39% of those surveyed chose this), and therefore businesses are likely to seek ways of reducing these costs. UK CEO Survey 2008 | 27
  28. 28. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Anticipated budget changes in 2008 Question: 4.9 How do you expect budgets to change in each of the following areas of your business during 2008, compared with 2007? Results: Procurement & supply chain Finance Risk management IT Marketing / sales Customer service Research & development Human resources Operations & production 0 20 40 60 80 100% Increase Increase No Decline Significantly Moderately Change Moderately Decline Don’t Significantly Know Observations: Even with significant concern regarding high operational costs, CEOs will judiciously focus cost management efforts through targeted budget adjustments to specific functional areas. CEOs forecast budget increases for customer service (51%), as well as marketing and sales (50%). Improving customer experience is key in the face of macroeconomic pressure and decline in consumer spending. From a CIO perspective, the creation of synergies between IT initiatives, customer services, and marketing teams (all of whom share in the biggest budget increases) will continue to grow in importance. Clearly, better systems and improved customer service are set to be strongly linked. This demonstrates businesses will focus considerable energy on improving both customer satisfaction and loyalty. 28 | UK CEO Survey 2008
  29. 29. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Companies expect IT to have the biggest impact on reducing operational costs (47%) (see fig. 4.7). This might go some way towards explaining why, despite high operational costs being seen as the greatest internal/operational barrier to growth in 2008 by half of the survey respondents, 41% of CEOs still expect to invest in overall operations and production in 2008. It may also explain why spending on IT doesn't show any imminent signs of a decline. However, this may come later. Analysts often talk of a "lag" period between a shift in economic conditions and the transfer of this impact into IT spending. More than one in five CEOs responded that they expect HR budgets to decline, this is notable given the turnover rates and the number of HR actions anticipated. The area which respondents had least budget certainty was research and development with 12% of respondents unsure of spend in this area. This may reflect ambiguity over the priority for innovation versus the drive to reduce costs in the current economic landscape. UK CEO Survey 2008 | 29
  30. 30. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Strategies for reducing or containing IT cost Question: 4.10 Which of the following strategies are you expecting to employ in order to reduce or contain IT costs over the next year? Select up to three. Results: Improve IT’s process efficiency Tighten management of IT-related demand from other departments Consolidate IT Reduce IT headcount Shift a proportion of IT headcount to low-cost location (eg, offshoring) Defer new IT-related investments Outsource IT function Other, please specify Not applicable 0 10 20 30 40 50 60 70 80% Observations: If costs are to be contained, how do CEOs expect their IT chiefs to do this? Nearly two-thirds of those surveyed (65%) expect CIOs to improve IT process efficiency, while 42% will seek to cut IT demands from other departments within the organisation and 27% will look at consolidation. IT chiefs will come under increasing pressure to ensure optimal use of technology throughout the organisation. However, to ensure IT’s success, CEOs anticipate spending on IT investment will not slow, as 53% of respondents anticipated that IT budgets would increase in 2008 with only 8% forecasting a decline (see fig. 4.9). Additionally, only 18% indicate they will reduce IT headcount and 9% say that they will outsource it. A further explanation of this apparent conflict of goals, cost reduction and increased IT spend was given by Ann Livermore, EVP of HP’s Technology Solutions Group, during an interview with Colin Barker of ZDNet UK (posted March 31, 2008 on ZDNet). When asked how she saw the current troubled economic situation affecting the business, Livermore responded: “In fact, we see many customers who have the capacity to still invest to save. In a data centre transformation what you are really doing is making an investment in a new infrastructure, to then be able to generate savings over a longer period of time. So those companies that have a strong cash position will often choose to do that.” 65% of respondents expect increased IT process efficiency. This corresponds with BearingPoint’s experience in the market place where we have observed a growing interest in the utilisation of both the ITIL process framework and the Lean 6 Sigma for Service process optimisation methodology to achieve these expected process efficiencies. 30 | UK CEO Survey 2008
  31. 31. IT priorities for battling the economic slowdown: UK CEO Survey 2008 42% of the respondents also placed greater emphasis on tightening the management of IT related demand from other departments. This incorporates mapping demand to resources and using financial data to provide complete cost tracking and staff time spent on project and service-oriented work. In turn, this results in accurate forecasting of future resource requirements, and better cost tracking of existing projects and services as well as improved prioritisation of IT activities to meet business needs. Consolidation of IT assets (27%) is also seen as important with the need to standardise and better use existing assets efficiently. IT Consolidation solutions reduce the complexity of IT environments while lowering costs and freeing resources for innovation throughout the solution lifecycle. 11% of respondents also said that they were looking to defer new IT-related spend. This confirms BearingPoint’s observation that in the current economic climate, many firms are continuing to manage core IT assets as an expense item to be minimised rather than leveraged for value creation, Our survey showed that offshoring was not considered to be the key focus of IT strategy going forward, with only 14% of respondents citing this as a preferred strategy. Outsourcing was favoured even less, with only 9% saying this was a key strategy for cost reduction. The relatively low forecast for use of outsourcing and offshoring by CEOs in this survey may reflect a changing, maturing view of drivers for implementing such strate- gies. Rather than being driven by cost alone, outsourcing and offshoring decisions must equally consider quality of service, and ongoing business agility. UK CEO Survey 2008 | 31
  32. 32. IT priorities for battling the economic slowdown: UK CEO Survey 2008 Extent to which IT cost reduction puts business imperatives at risk Question: 4.11 To what extent could any prospective IT cost reduction or containment strategies put the following business imperatives at risk? Results: Increasing business process quality Cutting operations costs Increasing speed to market Enabling new product / service development Improving quality of management information Reducing environmental impact Meeting regulatory compliance Improving the customer experience Business resilience 0 20 40 60 80 100% Outcome Outcome slightly No Outcome to Outcome to at risk at risk Impact benefit slightly benefit greatly Observations: In 2008, CEOs believe cutting back on IT investment could jeopardise their success in achieving three key business outcomes: improving business process quality; enhancing the customer’s experience; and cutting back operational costs. They are clearly aware IT cost cut-backs have the potential to impact the business negatively, not streamline it. In other words, sustained IT investment is considered critical. More importantly, however, for the CIO is ensuring that the IT budget is focused on meeting the CEO’s agenda and more closely targeting their organisation’s revised strategic objectives. Interestingly, 61% of CEOs believed that an IT cost reduction/containment exercise would not have an impact on regulatory compliance. In spite of increasing environmental awareness, reducing the IT budget is believed by 77% of CEOs to have little impact on their organisation’s ability to meet new environmental targets. 32 | UK CEO Survey 2008
  33. 33. IT priorities for battling the economic slowdown: UK CEO Survey 2008 About BearingPoint BearingPoint, Inc. (NYSE: BE) is one of the world’s largest providers of management and technology consulting services to Global 2000 companies and government organisations in 60 countries worldwide. Based in McLean, Va., the firm has more than 17,000 employees focusing on the Public Services, Financial Services and Commercial Services industries. BearingPoint professionals have built a reputation for knowing what it takes to help clients achieve their goals, and working closely with them to get the job done. Our service offerings are designed to help our clients generate revenue, increase cost-effectiveness, manage regulatory compliance, integrate information and transition to “next-generation” technology. For more information, visit the company’s Web site at or call us on 0207 939 6100. About HP HP focuses on simplifying technology experiences for all of its customers – from individual consumers to the largest businesses. With a portfolio that spans printing, personal computing, software, services and IT infrastructure, HP is among the world’s largest IT companies, with revenue totaling $110.4 billion for the four fiscal quarters ended April 30, 2008. More information about HP (NYSE: HPQ) is available at UK CEO Survey 2008 | 33
  34. 34. IT priorities for battling the economic slowdown: UK CEO Survey 2008 34 | UK CEO Survey 2008
  35. 35. IT priorities for battling the economic slowdown: UK CEO Survey 2008 UK CEO Survey 2008 | 35
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