Economic crisis means hard times, hard decisions for IT

As the economic news continues to get bleaker, double-digit budget cuts are becoming a fact of life in many IT departments – resulting in postponed purchases, delayed projects, hiring freezes and layoffs. The situation is undeniably grim, posing stiff leadership challenges for CIOs. But if there’s a silver lining, it’s that key IT initiatives in many cases are proceeding as planned, partly because of a desire among business executives to rely even more heavily on technology to help reduce corporate costs and boost revenues.

For example, Auto Warehousing Co.’s IT staff has been relatively lucky – although certainly not unscathed. AWC processes new cars for automakers, and it’s feeling the pain of the drop in car sales. For IT, that means a 24 per cent budget cut this year.

Dale Frantz, AWC’s CIO and chief technical officer, has frozen salaries and new hiring, eliminated most travel and put off hardware replacements and other capital spending until 2010.

But Frantz said last week at Computerworld’s Computerworld’s Premier 100 IT Leaders Conference in Orlando that he has been able to avoid job cuts thus far. And AWC is taking advantage of the business slowdown to expand its systems to some lower-volume facilities that had limited automation or none at all.

The recession “isn’t good for IT per se,” Frantz said prior to taking part in a panel discussion on economic issues. “But we do have an opportunity to clean up the processes at facilities where things maybe weren’t as efficient as they could be.”

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Also helping to protect IT jobs, Frantz said, are the lower software licensing costs that are kicking in as a result of AWC’s conversion from PCs to Macintosh systems, which began in 2007. “This turned out to be a great year to have that happen,” he noted.

Marie Mouchet, CIO for electric utility Southern Co.’s nuclear, power generation and wholesale power units, said the Atlanta-based company has reduced overall IT spending by about 10 per centt because of the downturn. Her team has cut merit raises, left vacancies unfilled and pushed back some projects, Mouchet said.

And, she added, when IT managers meet later this month with the chief financial officers of the utility’s operating companies for a quarterly review of tech projects, the focus “is all going to be about cost.”

But Mouchet hasn’t had to cut her IT head count, and most major projects remain on track. That includes the rollout of a new billing system for wholesale contracts, plus a companywide deployment of Oracle Corp.’s financial applications and IBM’s Maximo asset management software – a project that is expected to cost hundreds of millions of dollars.

Also, a push to cut corporate spending could accelerate Southern Co.’s adoption of new technologies, such as YouTube for video-based training and Inc.’s Kindle e-book reader for distributing repair manuals electronically. The recession “may be a catalyst to get a lot of these things in quicker,” Mouchet said.

Burlington Northern Santa Fe Corp. is another company that has avoided IT layoffs and is continuing to move forward on major projects, such as a replacement of its voice-mail system and an implementation of SAP AG’s financial and human resources apps.

Jo-ann Olsovsky, BNSF’s CIO, said the Fort Worth, Texas-based railway is cutting both capital spending and operational expenses within IT – primarily by not filling open positions and deferring work on some projects until next year.

But on the SAP and voice-mail projects, Olsovsky said, “we’re either so far into it that you can’t turn around or we just have to do it” because the systems being replaced are decades old.

Jerome Oglesby, chief technology officer at Deloitte Services LP, said the shared-services subsidiary of auditing and consulting firm Deloitte LLP has made adjustments “in a lot of different areas.” He wouldn’t specify which ones but said that some projects have been postponed and others canceled.

Even with the cuts, though, Deloitte Services is deploying videoconferencing technology “at a very fast pace” to help Deloitte’s operating units reduce their travel costs, Oglesby said.

“That’s one of the differences now: Our investments are more targeted,” he added. “You really have to get focused on looking at the basics of the business and the business bottom line.”

And in many organizations, the bottom line is none too pretty – nor is the impact it’s having on IT.

For example, the number of IT jobs in the U.S. counted by the National Association of Computer Consultant Businesses declined in each of the last four months of 2008. The NACCB, which uses data from the U.S. Bureau of Labor Statistics, said its tally of IT employment fell by 63,000 jobs from August to December – a drop-off of nearly 2 per cent.

One IT executive at the conference said his company has laid off a small number of tech workers as part of a move to cut its IT budget by about 10 per cent. “The big driver now is cost management,” said the exec, who asked not to be identified. But he added that the company hasn’t canceled any IT projects outright.

To help make up for the workforce reductions, the company’s IT department, which had been structured regionally, is tapping staffers from different parts of the world to work on projects. And the executive is trying to keep employees’ spirits up by talking about the role IT can play in helping to pull companies out of the slump. “The message I have for my team is, we are part of the solution,” he said.

Applied Materials Inc. also has reduced its IT staff, said Steve Finnerty, vice president of IT demand management at the Santa Clara, Calif.-based maker of semiconductor production equipment and other goods. And while Applied Materials plans to complete the second phase of an SAP project this year, Finnerty said IT primarily is looking to “leverage what we already have in place.”

In the wake of the cuts, Applied’s IT execs are trying to boost morale by laying out a road map for when business conditions improve. “We’re looking forward,” Finnerty said, “not just hunkering down and being fearful.”

Another IT manager who isn’t hunkering down – at least not any more than usual – is Brian Lurie, vice president of IT at Stryker Orthopaedics in Mahwah, N.J. Lurie said his budget is “pretty stable.”

Health care is better off than many other industries. But in keeping with parent company Stryker Corp.’s culture, the maker of surgical implants takes a conservative approach toward IT even in good times, Lurie said. And its IT staff is lean, with 125 people supporting 5,000 workers.

That’s below consulting firm Gartner Inc.’s recommended staffing level. But, Lurie said, “we don’t find ourselves on a hiring-and-firing roller coaster” as economic conditions change.

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Jim Love, Chief Content Officer, IT World Canada

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