|
Articles:
|
Penny-wise, Pound-foolish?: The Long-term Consequences of IT Cutbacks | |
|
May 23, 2003 I should know. Like a lot of my peers, I recently lost my job due to general downsizing caused by the current economic climate. The firm I worked for decided it wanted to retain profitability by reducing expenses, and staff is the obvious major expense. Cuts included senior level IT managers like me. At first glance, this looks like a reasonable choice. Everyone is doing it. But doesn’t that put the company at a disadvantage when the economy turns around? In my view, absolutely. The theory behind layoffs is that people are replaceable. When good times roll around again, new staff can pick up where the old left off. If you are dealing with lower levels of staff, that’s mostly true. However, in middle and upper management positions, when you lose an employee you also lose his knowledge of the company and how to make things work within the company culture. It takes a minimum of two months to go through a recruitment process. Add another four to six months before the replacement fits into the culture, and you have at best a six-month period when nothing concrete will happen. These days, any company that starts six months behind its competitors is bound to lose out. So how could firms be blind to the realities of what they are doing to their future? The answer is: they’re not. Of course they see the potential downside. But executive leadership is focused primarily on the immediate survival of the company. The future is important, but is way down on the priority list. The first concern is immediate corporate survival, and that is measured solely by the bottom line. If profitability is down, expenses have to be cut. If this doesn’t happen, the stock price goes lower, options are worth less, and it’s the executive’s fault. He’s history. Corporate management forgets the good years-and also forgets that business runs in cycles. The focus is solely on today: the unnerving sense that “I have to survive today before I can concern myself with tomorrow” predominates. Next on the priority scale for executive leadership is a demonstration of activity. Any activity. This usually takes the form of a reorganization, where a favorite target is “found to be the cause of problems” and eliminated. This serves to deflect public focus from management actions to specific projects. My friends and I refer to this as the “Curly Shuffle.” Usually following the reorganization is a new Company Mission Statement, telling all the employees how valued they are and how much management appreciates the hard work they perform. The Mission Statement then says how, going forward, the company will refocus its objectives to better serve clients, or save expenses by consolidation. No one ever mentions the lack of attention to either of these over the past many years. What all this really means is that people will lose jobs. Now we finally get to consideration of the company’s future. These discussions are frequently flawed in that there is no budget for any projects that don’t directly and immediately increase revenues. Also, there is now no staff with the time and skills needed to plan for a future. Executive management has little stomach for risk by this point, although risk is inherent in any work done for long-term benefit. I would like to say my experience is atypical, but it is not. It reflects what is happening all over the financial services sector. The same set of processes has occurred everywhere. And I don’t mean to imply that executive management doesn’t know what it is doing. Management is following a tried-and-true template for survival during bad economic periods. They know exactly what they are doing, and frankly, they can’t do much else, considering all the pressures they face. What pressure? Start with peer pressure. If a company’s perceived profitability is down compared to that of their competitors, management gets the blame. This means that comparative profitability has to stay consistent. And that can only be achieved by cutting costs. Then there is enhanced internal political pressure. When an upper level executive is perceived to be in trouble, that’s when the “next generation” executives try to take runs at their bosses’ jobs. It is very difficult for executives to feel comfortable while looking over their shoulders. The best way to avoid attacks is to be preemptive in cost cutting. This is basic human- and corporate- nature. Other related pressures involve shrinking budgets-often without warning-without shrinking expectations. This is especially true for IT departments, where a heavy percentage of the budget goes toward maintenance and operation services that can’t be reduced. New application development and infrastructure projects have to be the areas that are cut. Then the business says, “Why do I have an IT group that has not given me anything new for the money it costs?” And this perception is not altogether wrong. Business is getting less than it expected and deserves, but for reasons outside of IT’s control. In a bad economy, communications between business and IT is seldom a strong point. Finally, staff cuts take a tremendous toll on executives, emotionally as well as for the work-related problems they cause. Cutting salary is the last step most executives want to take, but they are given no choice. It is a lose-lose scenario, for productivity and corporate enthusiasm invariably suffer, immediate HR cuts affect the budget even more, and the power base of the executives is reduced. Is this a no-win situation? It’s true I am cynical about the “downturn template” I see being followed, while also understanding that management has no choice but to follow that template. But there is a better way. What is missing here is the vital aspect of planning. If, in good times, management had saved for the bad times, it would need to start execution of the template far later in a downturn. Years could be saved before the need to start the template, and usually downturns won’t last more than a few years at worst. The management strategy of living for the moment, of building up profits for an increased stock price today instead of focusing on a continued growth, is, in my view, the basic problem. This strategy forces companies to always live “on the edge,” a very uncomfortable place to balance. It forces them to continually react to circumstance instead of allowing for the management of change. The “reactive versus proactive” approach is at the base of many companies’ problems. But what exactly does it mean to be proactive? Frequently, being proactive is a state of mind more than an action. It is a major component of risk management and allows a company or person to handle the future unknowns with a better level of assurance. It involves training staff in multiple jobs, planning with business for upgrades and infrastructure projects as integral parts of budgets, and giving employees a feeling of job security mostly missing nowadays. Great success can be realized this way. I don’t fault crisis management. It is a necessary business activity. We suffer when it is the ONLY focus. Companies grow in times of change by being proactive: planning for their future needs by developing infrastructure to support whatever business decides it needs. Infrastructure isn’t just technology either. It’s an investment in people who can think – people who can help avoid the risks of uncertainty and can come up with novel ways of doing what their clientele will demand, rapidly and at lower cost. So what stops companies from planning? In a single word: success. In good times, executive management doesn’t want anything to change. If they spend on processes such as infrastructure, they see themselves as under-performing their peers in terms of ROI. Money is spent again on reactive support to immediate growth opportunities. The money rolls in, investors are happy and big bonuses result. There is no desire to plan for the future. Management has to realize that, like savings, the sooner you start the better the results. I suggest that a portion of profits be put aside each year to be used solely for infrastructure development, and that these sums not be counted as part of a company’s annual budget. The work could be done when times are lean. This would retain personnel and at the same time, allow a company to modernize its support structure. And when there are corporate as well as company levels, this is even more important. A business unit cannot support both its own needs and also respond to corporate pressures when its budget is cut and staff reduced. This cycle always heads downhill, and only delays the inevitable. For executives that retire before the crash, that is great, but for the company, it is disastrous. What about Strategic Planning groups? The presence of a Strategic Planning group does not mean there is a strategic plan for them to aim at. When, as exists in all crisis situations, the plan is to survive today, the planning group is powerless. A planning group has to have the ability to implement their plans, and usually budget and manpower is not available because of “more important” priorities. These groups are extremely important when they have the ability to act. They need to be sitting with executive management and get involved in every major business decision, at least in an advisory role. The CIO is the liaison between these groups and executive management. So where does one go from here? I can only answer with a quote everyone recognizes – “To thine own self be true.” When management stops pretending that problems will go away-that the market will turn around and everything will be as it was-and that their jobs depend on only immediate results, then and only then will the turnaround we all need occur. Management needs to stop avoiding confrontation with issues, and instead would benefit by turning these confrontations into opportunities for future growth. There are thousands of excellent IT managers now
unemployed due to layoffs; people who should be working and adding
value to their companies. It is tragic that they aren’t employed
and that there is little opportunity for them to become employed
soon. Many turn to consulting and many to career changes in service
industries. Most of the knowledge they possess will be lost. The
company that realizes this and hires them now will be getting great
bargains that will pay off many-fold in the future. .©
David Hirsch 2003 |
||
| Contact Us | Home | |
