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Expect the current on again off again economy to remain for some time. This uncertainty requires IT to change its approach to budgeting and external spending. By adopting the strategy and language outlined in this article, enterprises will benefit from closer alignment between IT and executive management.
Economic Malaise Likely to Continue
A myriad of factors are challenging our economy. The biggest one we see is the extreme policy difference in Washington. Fiscal policy, what elected officials create, is in opposition to monetary policy, what the Federal Reserve Bank does. Today our President and Congress are the biggest factor in fiscal policy. Right now, there is an ideological deadlock between the Democratic President and Senate and the Republican-controlled House of Representatives. If nothing else, the budget ceiling negotiations demonstrate some of the differences.
Our monetary policy has been to create and foster extraordinarily high levels of liquidity and low interest rates, so much liquidity that many fear that quantitative easing, or printing money, will lead to out-of-control inflation. Our fiscal policy has been in opposition to monetary policy. Fiscal policy has increased regulations and demanded ever-higher bank reserves. Thus far, these actions have more than offset monetary stimulus.
These differences have created a two-steps-forward, one-step back economy. With the next Congress and administration not beginning until January 2013, we do not expect major change for at least 24 months. It will take time for those elected to change policies and then more time for those policies to affect the real world.
The Challenge for Management
In terms of the IT economy, the economic malaise will likely lead to great volatility. Yes, IT budgets overall are relatively stable. Purchases of goods and services, however, can be volatile
This environment is a challenge for all levels of the enterprise, not just IT. Sales forecasts become a crapshoot. The outlook for borrowing short or long remains volatile. Most C-level executives are trying to read every bit of inside information to give them clues about what to do in the intermediate term. Make your comments short and to the point; then ask if anyone needs more. Rambling comments that hedge will make you vulnerable.
Thankfully, in the intermediate term, IT does not have to make or directly depend on sales forecasts. As a result, we expect IT budgets to be relatively flat. Purchasing, however, is likely to be volatile. History demonstrates the “first derivative” nature of IT purchases across the economy. Figure 1 reflects the entire economy, which tends to smooth overall trends.
Depending on the company’s business, volatility may well prove to be greater than the chart would imply. For many, the budget leash is pulled on a quarterly if not monthly basis. This is why the IT line is so volatile in Figure 1. While this will likely be a painful time, Figure 2 shows why we are all here.
How to Rise Above the Mess
Bring your language to the lowest possible business level. Your business has both fixed and variable costs. Can you present your budget in those terms? If you cannot, put an analyst on this task immediately.
Adopt the enterprise’s strategy language into your presentations. From your point of view, the IT strategy is hand in glove with the enterprise. This does not matter unless everyone believes the same.
Widen your internal communications to reach more executives. Your CEO and CFO have a firm understanding of your strategy. That makes you feel good, right up until the moment one or the other leaves. C-level turnover increases in challenging economies.
How other executives perceive IT strategy is more important. Do they understand why you are executing the way you are? For many, the answer is maybe yes, maybe no. This makes you vulnerable.
You have been through enough corporate reviews and planning sessions to know how your company’s strategy language. If your entity does not have a stated mission, adopt a simple model for your organization that reflects what you see around you. Our favorite uses a three level form:
Objectives are very long-term goals, usually measured in years or presidential terms. This is where you repeat the corporate mission statement and say something about how IT does this. If your business does not have a concise mission statement, say something like:
- “My team’s mission is to bring technology economics to every level of our enterprise”
- “My team’s mission is to insure the highest customer satisfaction possible.”
- “My team’s mission is to focus our IT dollars on the highest ROI projects.”
This statement should not change much during your administration. Naturally if a new CEO arrives and the business’s style changes, IT’s objectives need to evolve with it. Think about what you should say. Do not be afraid to cast bread on the water and ask other managers in and outside of IT. This will take time. Doing this well will pay big dividends.
Once you are happy with it, make sure everyone in IT knows it and adopts your mission.
Strategy covers the intermediate term, one to three years. With several statements explain initiatives to support the enterprise. This is where IT integrates the enterprise's action plan. For example, if part of the enterprise’s strategy is to expand globally, state that supporting global expansion is part of IT’s strategy.
While the whole team needs to know the mission, your senior managers need to know the strategy points, and especially those impacted most directly. Ideally, these managers will help you formulate these strategy statements. It should be up to them to communicate the strategy to their team as a team objective.
Tactics are what you are doing this month, quarter, and year.Generally speaking, you do not have to communicate the complete set of your tactics to your entire organization. It does not need to be secret, but the affected teams need to understand and consider them in the workflow.
Do not make an economic forecast. Consider our forecast as a guideline. There is little to no upside in commenting unless someone asks you. Even then, keep your language at a high level. “I think we are going to be in a bumpy/flat economy for some time.” Other executives will appreciate that. Let them make the forecast and translate it to the company’s business. Your job is to listen to these forecasts and develop tactics to deal with those perceptions.
Action Item: * Adopt the lowest level business language you can.
- Organize your buget reports in both the standard manner and in a coarse low-level manner.
- Communicate IT's activities in the context of your enterprises mission, initiatives, and activity.
- In the event of an amorphous enterprise mission statement, adopt the traditional objectives, strategies, and tactics model when communicating up and down within your organization.
- Do not ever make an economic forecast. Focus on dealing with the economy as it is now, that is challenging enough.