How long will the IT recession last?

Newsflash for internet writers: The recession isn't over. It hasn't even really got going yet. Stop trying to talk the market back up. It doesn't work for real estate agents and it doesn't work for IT. Get real.

These thoughts were triggered by some comments from Computer Economics (thanks to David Ratcliffe, Pink Prez). For the 30-second-attention-spanners amongst you, here's the gist:

...survey data is long enough to provide insight into how organizations changed their IT spending during the two previous recessions. Although the past is not always a precursor of the future, we find evidence that IT spending should rebound more quickly than it did during the tech-led recession in 2001, following a pattern more akin to what occurred after the deep 1990-91 downturn. Our long-range forecast, however, does not anticipate a return to the 1990 boom years, when Internet and Y2K spending produced a bubble that distorted historical patterns. Rather, we anticipate spending should rebound to the more modest rates of recent years...In root causes, the current recession bears remarkable similarities to the recession of 1990, which was led by the financial sector. It also bears some similarities in IT spending patterns during the 2001 recession. In either case, over the past 20 years the negative impact on IT spending has never lasted more than two years. Therefore, based on our analysis, Computer Economics sees IT spending remaining weak through 2009, with a recovery in 2010.

While it is interesting, there are some flaws in the reasoning. Primarily, most commentators agree this will be the biggest recession since the 1930s so how they can compare? Their data doesn't go back to then for the simple reason that this is the first time in history that IT has faced a crisis of this magnitude.

I do agree the Y2K recession was different, self-imposed almost. Unfortunately that means that we agree that of their sample base of two recessions, one is not applicable. Not the soundest of footings for forecasting the future.

I also agree IT is now lean, with less to cut. In a twisted way that could be a liability. Businesses are going to the wall. As desperation levels rise, in some organisations all parts of the business will be told to cut deep, and "nothing left to cut" will not be sufficient excuse to avoid taking one for the team. If all the fat is gone we'll have to give a pound of flesh: there will be real damage to IT.

My biggest concern is that there are no services (consulting) in the data. Software prices are falling, commoditising. Vendors increasingly depend on services revenue, and many now do nothing else. There are no predictors in this data for how consulting services will be affected.

The industry is getting lots of these dangerous messages right now. Pink President says

it doesn’t appear to be as significant as you might think.... Six months ago you likely had the confidence to tackle that big project - so if it was a good idea then, it should still be a good idea now. Don’t let “Recession Jitters” get in your way!

It is indeed true that recessions are a time of opportunity for those with the nerve to take a few calculated risks. Money is cheap, labour plentiful, competitors often weakened.

And even McKinsey are saying:

Executives view their economies as bad but, in a change from recent months, do not see them getting much worse... Most companies, respondents indicate, are still coping with the crisis by cutting costs, and many are also making more use of long-term tactics (such as restructuring) suggesting that they see the global economic turmoil as the new normal.

The previous posts make sense, unlike >this post from Baseline which is almost too stupid for words, but I'll find them. Their reasoning shows they think the recession is at bottom which indicates they either don't read much or don't think at all.

Peak unemployment among technology workers (6.5%) was higher than the national average (6.3%) during the last decline. Today, those numbers have reversed: national rate (8.1%), technology industry (5.4%) [IT will always lag the general economy you idiots: they throw the unskilled workers overboard first, with the exception of the last bust which was IT technology driven]
The number of IT Job postings is 2.7 times higher now on than at the low-point of the last recession

The remaining 4 "reasons" really are too stupid for words.

Or this one...

tech departments are well prepared to weather whatever comes their way in the next year, and ...IT -- thanks to lessons learned from the last downturn -- is much more resistant to economic uncertainty than it once was. Much has changed since the dot-com implosion and subsequent recession of 2001 and 2002, when the tech sector took a huge hit and many IT jobs were cut..... The major shift for IT during the past few years has been a much sharper focus on cost containment and ROI, not to mention significantly leaner staffs. Thanks to IT practices such as SaaS (software as a service), outsourcing, and virtualization, the cost of obtaining essential IT services is much lower than in years past. Most important, technology is now viewed by virtually everyone on the C level as a key strategic component of business success. Enterprises that slash their tech budgets could end up cutting their own throats.

...sounder arguments but they contain the seed of their own destruction: costs have been contained by outsourcing (now more discretely called SaaS and Cloud). Look for a lot more of this outsourcing which equals a lot more jobs lost - in the consuming businesses and in the software and hardware companies that now won't be selling anything to those businesses.

I would dearly love for these sunny scenarios to be true - the IT Skeptic is just about broke. But all the signs say such excessive optimism is dangerous. China, our last bulwark of the world economy, is staggering. Unemployment, foreclosures and bankruptcies are still increasing. Round here the real-estate signs are growing like weeds. Most IT shops still don't have the business acumen to be managing innovative initiatives through the worst recession in living memory. The ones who are smart enough to succeed don't need to be told. Encouraging the others to try is like enouraging kids to drive cars.

In a sober moment, the IT Swami told me he thinks this recession will slide downwards for at least two more years, or many more if we tumble into full depression. We are then looking at a few more years to bottom out, recover and build back up to a healthy economy again. As all the sunny-siders have shown, IT lags the general economy (at least on the downward it does), so we are just starting the downward plunge now and can expect to have hard times until somewhere around 2012 to 2014.

Last word goes to McKinsey again:

In three of the past four major downturns, IT spending in the United States fell twice as much as GDP did, and it fell even more in the fourth... About half of the companies that entered these downturns as leaders—the top 20 percent—ended up as laggards when the economy regained momentum.

[See also the comments below which extend the article]


economic ostriches

Another one for the economic ostriches amongst us (thank-you A.), according to the BBC

A US economist has claimed that the governor of the Bank of England told him "tough" budgetary measures would be necessary in the UK.

David Hale said Governor Mervyn King had said the measures would keep whoever wins the next election "out of power for a whole generation".

Incidentally these were the BBC headlines alongside that story:

UK economic growth slows to 0.2%
UK borrowing hits record £163.4bn
Small increase in UK retail sales
UK unemployment increases to 2.5m
UK inflation rate rises to 3.4%

"You don't need a weatherman to tell which way the wind blows" R Zimmerman

The slide gathers momentum

The slide gathers momentum

Standard & Poor's downgraded Spain's debt to a "AA" rating Wednesday, down from "AA+," a day after its downgrading of Greek debt set off falls in markets worldwide.

I hate to say

I hate to say I told you so but, from the BBC...

Asian stock markets have suffered big falls amid further signs that the Greek debt crisis is intensifying.
Shortly before the close, the Tokyo market was down more than 2.6% after falling almost 3% in early trading.
Hong Kong's Hang Seng was down 1.3%, while Singapore has seen a 1.5% drop so far.
Global shares have tumbled after the credit rating agency Standard and Poor's downgraded Greek debt to "junk" on Tuesday.
European markets suffered bigger falls on Tuesday, with London's FTSE 100 down 2.6% and France's Cac 40 index falling 3.8%.
On Wall Street, the Dow Jones index fell nearly 2%.
In Greece itself, demonstrators called for the country to default on its debts, so that foreign banks would pay the price for the crisis.
Greece has become the first eurozone member to have its debt downgraded to "junk" status.
Portugal's credit rating was also cut by two-notches to A-minus, further fuelling concern that the crisis was about to spread across Europe, forcing a number of countries to default on their debts, hurting the euro, and sparking a new crisis.
Some investors have expressed concern that the current market jitters could turn into something much bigger.

It certainly doesn't sound like the Greeks are going to acknowledge they screwed up and take one for the team. They seem hell-bent on dragging us all down. Last year might just have been the first swoop of a long dive.

Skeptical of the gloom and doom

If this were a 12-18 months ago, I'd be more concerned. There is an adage that it's not the quality of debt that matters, it's the quality of debt holders. The domino theory of credit busts do not come about as a result of borrowers' actions, but rather when over-leveraged creditors are forced to sell for big losses. We are not in the same place we were when Lehman went belly up.

Like Argentina, Greece has a long history defaults. It has been in default roughly one out of every two years since it first gained its independence. Greece debt wasn't exactly traded as AAA securities. This won't be pretty for Greek citizens, but an Argentine-style meltdown can be avoided.

The economy falls like a leaf

Argentina wasn't part of the euro.

When climbing a mountain, inexperienced climbers are often plagued by "false summits". it looks like the top until you get to it and find it was merely a minor peak or an inflexion in the slope, disguising the true summit beyond.

likewise in many falls including the Great Depression there are false bottoms, not to be confused with secret suitcases. See the quotes above where the Depression was prematurely called as over.

To use another analogy, the economy falls like a leaf, swooping back up under its own falling momentum before stalling and turning into a new plunge. The current cycle looks exactly like that to me. All the upward movement is due to artificial stimulus, the bears coming out to buy, misplaced confidence of generations who have never been here before, and the short attention span of the modern public. Watch it stall as gravity/reality regains control, when we then discover how much empty air there still is under our economy.

economic dead cat bounce?

It ain't over yet. From Thursday's paper while I was in Las Vegas:
24% of mortgaged USA homes have -ve equity, up from 23% in Sept.
702 "problem" banks, highest since 1993.
US cons conf falls steeply in Jan

This could easily be a dead cat bounce

Davos calls the recovery fragile

According to Knowledge@Wharton

Delegates to the just-ended World Economic Forum in Davos, Switzerland, found plenty of positive economic signs -- but ...called the global recovery "fragile."
Nouriel Roubini, a New York University economics professor who had predicted the financial crisis at the Davos meeting three years ago, sent jitters through the meeting with his forecast for a slow recovery worldwide, "subpar growth" and risk of a double-dip, or second recession.
Threats, like panic sparked by a possible government-bond default in Greece or Spain, could roil the financial markets and world economy, many said.
"It all boils down to jobs at this point," says Mark Zandi, chief economist and co-founder of Moody's, analyzing the U.S. economy. "We're still losing them. There's widespread optimism that we will start creating them soon. If we don't, then the recovery will be stillborn."
Most experts point out that the world economy is fragile and much could go wrong. "Oil prices could shoot up," Siegel warns. "We could have a very serious development in Greece that causes disruption to the euro zone." Spain looks even more worrisome to many observers.

Wharton Management Professor Marshall W. Meyer notes that China is prone to boom and bust cycles, with booms introducing damaging factors into the world economy, such as higher commodities prices. Currently, he says, China appears to be in a real estate bubble. "Real estate prices are way beyond the reach of ordinary Chinese, particularly in the cities." If the bubble continues to expand and then bursts, it could spark panic in world financial markets, he notes. "I think the psychological impact of a sudden drop in real estate prices in China would be far more important than any economic impact."
In the U.S., ... "Banks are not lending very much," says Wharton business and public policy professor Howard Pack. "There's still a huge amount of unemployment and no prospect that it will be reduced very rapidly. And there are still foreclosures."

British economy forecast to shrink 4.75% in 2009

# [British] Economy forecast to shrink 4.75% in 2009, worse than 3.5% forecast in April
# Growth of 1%-1.5% expected in 2010 [yeah, right!]

UK Govt pre-budget report

recovery too weak to halt the continuing rise in unemployment

The economic recovery now spreading across developed countries is too weak to halt the continuing rise in unemployment, according to the Organisation for Economic Co-Operation and Development. The jobless rate is expected to peak in the first half of 2010 in the U.S., but it may not be until 2011 that unemployment begins to fall in the Euro area

Harvard Business Daily Stat

don't take down the storm shutters just yet

Everywhere you turn is cautious talk of a recovery.

For those of you taking down the storm shutters and replacing the patio furniture, not so fast.

Britain is still in nosedive: "Manufacturing output dropped sharply in August... at its lowest since 1992"

US unemployment is still rising and expected to peak next year

China is a huge mountain rumbling

Even Microsoft says it aint over so it must be true.

The housing market threatens the future economy

As I've said previously, I'm more interested in good oldfashioned fundamental markets as indicators of the economy's health, and property is one of the main ones. The news ain't good. From the Economist

The Obama administration’s economic successes “will be for naught” if the [USA's] housing free-fall continues much longer... Rising joblessness will continue to weigh on demand for homes. The unemployment rate, currently 9.4%, is expected to peak at more than 10% some time next year... the positive signs in housing are partly driven by short-term factors... A glut of supply will also weigh on prices, thanks to a wave of repossessions. Foreclosures are running at record levels, with one in 355 of the [USA]’s homes receiving a filing in July alone. Seized properties now account for almost one in four sales [in the USA]..., a property-information service, estimates that 23% of homes with mortgages are underwater. Others put it higher. A staggering 60% are submerged in Las Vegas. Deutsche Bank’s securitisation team expects negative equity to peak at 48% of total homes by 2011... the recent pop in house prices will probably fizzle. Most economists expect them to fall by a further 5-10 percentage points, to their long-term trend line at roughly 40% below their peak, and not to reach bottom until some time in 2010. The pessimists predict they will go crashing through the trend-line to as little as half their 2006 high.

It ain't over - brace for more

tracking the economy

When you filter out the noise from those who have a vested interest in talking up the economy, such as governments, banks and big business, the remaining information is not so sunny. I'm also old-fashioned enough to discount news about the artificial or virtual economies such as the stockmarket or private equity. I'm more interested in what is happening with dirt (real estate) or boxes (trade). So I noted this article from The Economist, my favourite source:

WORLD trade has been one of the worst casualties of the global economic slowdown... Towards the end of last year trade all but collapsed... slumping by a whopping 32.6% in the year to January... the worst of the slump may now be past... exports and imports have held more or less steady since January... It is too early, however, to conclude that trade will bounce back... for a sustainable recovery in trade, global demand has to recover on its own steam. It is not clear where demand might come from... American households are now saving 5% of their incomes, up from essentially nothing a year ago. Unemployment in America and elsewhere will continue to rise... Luckily, the more open world trading system which allowed trade to thrive has not collapsed. If open trade survives, trade could recover smartly when the world economy does. But given the fundamental problem of deficient demand still facing the world economy, a recovery in trade is likely to be some time coming.

In short, we're flat out on the bottom and will be a while getting back up. If open trade survives, we might bounce back. If the USA and/or EU get all protectionist on us (and there are some seriously inward-looking ideas about), we won't.

I think even the talk of bottoming out is optimistic ("It is not clear where demand might come from"). Unemployed people and bad loans are still raining down on the world's economies. They will drive another turn of the downward spiral. Talk of a new dawn in 2009 or 2010 is premature. Green shoots are soon rubbed out.

latest on the economy from McKinsey

For the June quarter, McKinsey say

Executives have become notably more optimistic about their companies’ and their countries’ economic prospects since mid-April—but the outlook was so poor then that optimism must be tempered.

I also note some New Zealand retailers and manufacturers are having a better year in 2009 than 2008!! Though unemployment remains high, and some companies took the staff hit in 2008 and are now benefiting...

I refuse to allow myself to get optimistic about the economy yet - better pleasantly surprised than bitterly disappointed. Personally, it is still very very tough.

Wharton says the recession aint over

A month after the Economist quote above, here's Wharton School of the University of Pennsylvania:

Most financial experts at Wharton and elsewhere insist that the much-talked about recovery is not here yet, despite some of the first hopeful data in months -- and they remain concerned that the recovery will be weaker and take longer to gain momentum than past slowdowns...
A June 10 from the [US] Federal Reserve Board said that economic conditions remained weak during mid-April through May. Conditions deteriorated in many regions of the country, the survey found, as commercial real estate and labor markets continued to struggle...
Several Wharton experts express fairly pessimistic views about the recovery -- predicting that positive growth may not be here yet, and that even when it does arrive, it will probably take several years for employment rates to return to so-called normal levels. Even if the U.S. gross domestic product turns positive by the end of 2009, they note, the American economy will remain close to the bottom of the large trough that began in late 2007, with a long way to climb for jobs, home prices and other key economic indicators just to get back to where they were... "Many of the underlying problems remain -- and we still haven't seen the worst in terms of consumer problems," says Mauro Guillen, Wharton professor of international management and sociology and director of the Lauder Institute at Penn. He lists some of these problems as ongoing mortgage woes for U.S. homeowners -- highlighted by the latest statistics showing about 12% are behind on their mortgages or in foreclosure -- as well as a deepening crisis in consumer credit card debt, looming troubles for commercial real estate, and the ongoing issue of so-called "toxic assets" on the books of larger banks, which may continue to impede their ability to make the loans that would spur a recovery...
The U.S. jobless rate for May has reached 9.4%, the highest in a generation...

On the other hand:

some economists -- even those who predicted financial gloom a couple of years ago -- are seeing a few early signs of optimism. A recent survey of 45 professional forecasters released by the National Association of Business Economists showed that three-quarters of them predicted that the economic recovery would be underway by the late summer or early fall, and none expects the recession to last later than the early months of 2010. Princeton's economist and recent Nobel laureate Paul Krugman says the world economy "averted utter catastrophe" but that the road to recovery will be slow and laced with lingering pain.

Latest on recession from the Economist

According to The Economist, things aren't looking good, just less bad:

the data suggest only that the economy is contracting at a slower pace than before. Nevertheless, the figures seem to point to a deepish recession, rather than the rerun of the Depression that was feared a few months ago... The trouble with this picture is that it all seems too neat... The economic data may have improved, but only from some terrible lows... an observer who had woken after sleeping for the past two years, would be alarmed at the numbers. Nominal GDP in America has fallen for two consecutive quarters for the first time in more than half a century. Industrial production is still dropping at a double-digit annual rate in America, the euro zone and much of Latin America and South-East Asia. Companies are still defaulting on their debts at a steady rate; 40 issuers did so in April and Moody’s expects the default rate to reach 14.3% by next March... 62% of American companies have missed expectations for sales... The world is still drowning in debt, unemployment is still rising, wages are stagnant and the threat of higher taxes hangs over consumers. This was not a conventional downturn; it is unlikely to herald a conventional recovery.


I'm surprised nobody has commented on the Baseline post I linked to. It's only six slides - take a look. I've seen bad and I've seen dumb but I think that one sets a new low ( a baseline as it were) for sheer stupidity.

We have forgotten our roots...

I'm tempted to say you are all missing the point here in some way. For years I have taught to a simple 'value equation' and its a major eyecatcher in the USMBOK publication or many - "Value = Results / Cost ". Now thats the dumbed down version but, add its buddy the expectation equation "Expectation = Requirement versus Capability" and we have the core of what service management SHOULD all be about - establishing and instrumenting these two equations.

Yes there are more but can I keep you all here for a moment. Service management initiatives should have already made these two simple equations a project goal and must do deliverable. As many of you have blogged - just slamming in 'improved processes' without any understanding of the eventual outcome or whether a customer/business benefit is to be gained is stupidity. Stupidity that is being found out by these economic times.

If you are involved in a service management initiative - please ask yourself - why are we doing this and do I have these kind of equations and objectives at my core? If not - STOP. The light you see is not the end of the tunnel.

We need to reset service management across the industry and restate its original intentions - a quality service at a reducing cost, with quality linked to results, or outcomes as some say. If it is not focused on this simple premise - start over.

I truly believe as we will look back on this period in our history in years hence we risk seeing a dark stain across the geological landscape and recall that was the KT-layer - the extinction zone for ITSM projects.

Its time to return to our roots - and remember we are purveyors of information system services - we are IS, not IT, IT stands for 'invisible technology' in today's wired world. Can we all blog together on the ten core principles of service management - and offer a path out of this process improvement and capability maturity model madness???

Another people issue

>Rant on

Ian, the trouble is a lot of people behind ITSM initiatives are in for the kudos it brings themselves, not for the benefit it brings their customers, co managers/workers, or for that matter, their suppliers. So often the result being pursued is a promotion and a move away from ITSM, or better still joining a consultancy company. The changes these people make in their organisations are superficial, and the results they deliver often the result of data manipulation not underlying improvement. It isn't the low hanging fruit they grasp, it is the fruit rotting on the ground.

>Rant off

These people, and to be fair a large proportion of well meaning souls who see ITSM as a lifeline, can't return to the roots because they weren't involved in the early years, and ITIL in particular now obscures the basics behind a layer of pseudo academic thinking

Incidentally I no longer use capability maturity models with my clients unless I really have to.


Agree for process improvement but less for ITSM

For process improvement I agree but not for ITSM. Good service management includes continuous service improvement so there is a link. But typically ITSM is still miss understood and therefore difficult to deploy, I would say people pushing for ITSM are not in it for a promotion and if they are they are naive as these are risky projects. But process improvement is a safer bet. You review a process apply some six sigma terminology and make some hacks and patches to an already flaky process and move on up the ladder before anyone notices you did more damage than good.

An interesting observation for so called process improvement. Six sigma process improvements will only work on a stable process as it relies on data points to measure “the voice of the process”. Yet we see many organisations and so called black belts insisting on applying six sigma principles to processes that are anything but stable and have no historic data points. I am suspicious of process improvement experts making improvements to broken processes in the name of six sigma.

ITIL Doesn't Matter Results Do...

James - I like the rant on - rant off bit... I might use that.

3 years ago I presented to the title of this entry at the annual conference. I drew a crowd of 4-500 that seemed to include every name you might drop within OGC, TSO, APMG, and Castle ITIL. I had previously crossed emails with Nicholas Carr for pointers on how to get bums on seats and then out of their seats (he being the innovator of the technique and eyecatcher title!).

At the core was an attempt to remind folks of what Deming said - process improvement (especially one based around the 'implementation' of an onerous framework) is irrelevant unless it directly and positively affects either the results of the customer (I add provider) or the cost of provision. Similarly, ITIL or any other 'best practice' (note that is now missing from ITIL book covers) framework is irrelevant unless it meets this criteria.

It did not sit well with some folks - yet I feel it is fair to ask any approach for specific proof of value.

I fear too many of our peers were lured to the ITIL bound process improvement light and focus far too much on getting processes in place rather than fixing a customer related service problem. Too many others make money by repeating a mantra and encouraging customers to do what eventually amounts to foolish things. My experience is that few actually attach the approach to specific problems, goals and benefits. This is a huge issue in our profession and I see little changing from within.
This economy will see many of those folks and their projects suffer horribly in front of C-level stakeholders, questioning them on why the project should continue... it will take an outside influence to reset what service management was all about - and how one proposal can be weighed against another. We should welcome this opportunity - there is no better time to do service management!

I ask folks out there - what will your project deliver in the way of real tangible benefits to either the customer or provider communities in the next 30, 60, 90 days.... Apply a reality check yourself - now - before someone else does...

Funny you should say that...

My new website focuses on just that point. It also came up in a debate about corporate governance - why is it that organisations can comply with corporate governance requirements but still get away with being dishonest?

The only, partial, answer I have at the moment is we have been asking the wrong kinds of question. How many ITIL maturity assessments have you seen that ask about outcomes, not process?

Don't blame ITIL

ITIL is about delivering a service and service is all about the customer. So I do think ITIL is customer focused. The people implementing it however are often bogged down in the depths of the processes and detached from the customer experience and costs. Often because no joined up processes are in place before the ITIL programme, it is really difficult to measure any improvements. If the programme works the improvements are obvious unfortunately most the programmes don’t work and then people challenge ITIL’s value.
All ITIL does is describes a bunch of processes that interrelate with each other to provide a way to deliver IT services. Most organisations have a complex mess of process that do not all support good service. For these people ITIL will provide better service for less cost. It is like the factory assemble line for IT. But implementing one bit of the line with out the others will not deliver any value to the overall service.

IT employment market down by 70%


I think Ian's "next 30, 60, 90 days" challenge is very salient in the current climate. Thoise who don't follow me on twitter may not have noticed when I said:

New Zealand IT employment market down by 70% over 12 months according to one recruitment agency. First time ever candidates exceed positions

I doubt very much that New Zealand is unique, though possibly a bit worse due to a new cost-cutting government in power. Maybe other places are only 50% down.

Now is not the time to have your project disbanded. If the projected benefits are 18 months out, you are in deep drek.

IT doesn't need any more processes

We're seeing our customers cutting way back on IT expenditures - particularly since their budgets for IT are based upon a percentage of revenue, not on any actual understood need for services.

The most interesting comment I've heard though, from the new CIO of one of our customers is that, "IT doesn't need any more processes."

He'd rather they focus exclusively on those things that are customer-facing - and has cancelled all IT process improvement activities.

Cary King
Minerva Enterprises
Managing Partner

Excellent Observation...

The most interesting comment I've heard though, from the new CIO of one of our customers is that, "IT doesn't need any more processes."
He'd rather they focus exclusively on those things that are customer-facing - and has cancelled all IT process improvement activities.

While it may be painful learning for some, maybe the lessons is that non-value-producing activity is merely waste. It's better to eliminate the waste and start getting interested in how to add value.



Interesting because it sounds like process improvement hasn't been developed as an approach where the sole measure of success is "does it make things better for the customer"

I'm currently fed up an IT supplier who constantly tell me about all the work they've done to improve things behind the scenes, but who in eighteen months haven't delivered a single improvement that has impacted on the customer.

Real process improvement is required

I completely agree IT does not need more process but I think cutting process improvement is mad in times like this. The objective of process improvement is to reduce process effort and increase performance. Unfortunately process improvement activities have got a bad name because they are usually performed at the wrong level and merely add patches to the main process which in turn adds more process. I recall a change management process improvement project that increased the procedure from 50 pages to over 150 - yea great improvement. Process was slower, taking more effort and was less flexible. Why did they take this approach? Because they did not have authorisation to make the necessary changes to the change system so they added manual processes - and added them to the procedure.

What is really required is simplification of processes. Cut out duplicated processes and systems, cut out the approvals from people who don't know what they are approving, cut out requests from people who are not authorised to request, cut out the manual process where tools exist to automate, cut out meetings that have no objectives. Implement real process improvement and save the IT customers money.

Real improvement

Sounds familiar, like the organisation where what was wrong with their change process was obvious to a five year old:

- They only looked at the changes at a CAB held the day before release window
- Security would veto changes, but refuse to look at them before they got to the CAB, or offer advice in case it compromised their independence
- Nobody from the business sat on the CAB
- Most major decisions were changed after the CAB as a result of politics
- Nobody ever reviewed changes or reported on their failure rate

The improvement was to produce an unreadable thirty page long process guide that ignored all these points, but was ignored by everybody anyway.

I hate to mention that they achieved ISO/IEC 20000 certification

percentage of revenue

fabulous point that so often "budgets for IT are based upon a percentage of revenue, not on any actual understood need for services". I recall years ago I worked with an insurance company where McKinsey or Boston or somesuch came in and told the Board "the benchmark for your industry is 4% on IT, you do 6%" or whatever the numbers were, I forget, and the mesaage to the CIO was "I don't care. Cut 30% in three years. Get on it.". I remember something similar in a large retailer too, although the percentages were of course smaller.

In that sort of company guess what happens when revenues plummet.

They say "cut 30%"? Offer them 40%!

So what if IT budgets get cut.
They say "cut 30%"? Offer them 40%!
Obviously the CEO has no idea of the added value IT, so there's no point is screeming that IT is so important. The only reason you don't want to cut your 30% is because IT is push - not pull. And that means that you're always going to be the underdog.
My advise to the CIO: have guts and offer a 40% contribution to the company pain. Your CEO will love you for it.... Until he finds out what is going wrong.

Two sources for cost cutting: the standing organization and the new projects.
So just offer the CEO the choice of projects he wants to kill. This will effectively stimulate the awareness that IT cannot be cut, unless it indeed can be cut. Which again helps you in making your point "IT is only there to help the business, not to waist their money."
And if the CEO wants you to cut your cost of the standing organization, make sure he sees the drop in customer satisfaction and business value. If there is no drop, he just proved he was right.

The recession and subsequent cost cutting is a blessing for IT. A great opportunity to make a giant leap in business IT alignment.

Get me below this number.... or I will find someone who will

I once helped a CIO realize his CFO was right when calling for the IT budget to be below a specific number within 30 days. A failure to do so would mean insufficient cash flow to make payroll and a quick demise of morals and IT in many ways. First we furloughed (temporary suspension) workers, then fired them and brought them back on contract to lower fixed costs, then eventually cut again.

This was all because we were unable to associate the operational costs and costs associated with running IT with individual customer communities or services. The answer was simple - embark on a service management journey to add these perspectives. The business case was improbable - no new projects or investments.

We compiled a crude service catalog and list of customers, retooled the support system overnight to log (mandatory) the customer organization and activity at the core of their support (break fix and service request) request, and ran reports.

It was an epiphany for all involved. No new tools. No new processes, just a few adjustments to procedures and a massive incentive of keeping your job - plus a dollop of explanation in the form of 'come to Jesus' session with staff as to why we were doing it.

Did it work - partly - the company was so screwed up it still ranked strategic customers that drained resources over those that were profitable to us. In the end more IT staff joined the 'red shirt society'. That said a key principle was forged between the business and IT - embed common customer/service language in key procedures...

IT services need to be fit for purpose

We all know IT is important but it needs to be related to the ability the business has to pay for it. IT services need to be fit for purpose. If they need to cut 40% then this is the new requirement. Like buying a car one of the key factors on the decision is budget. So expectations need to be realistic you won't get a top of the range BMW for Ford money.

However in my experience I see vast waste in IT and recessions usually cut out the dead wood and make it easier for the people who want to get things done. IT suppliers will tell you how difficult and wasteful it is to deliver in many IT organisations. Unnecessary meetings, people missing actions (too busy in other meetings to do any actions), poor processes and slow decisions. IT heads have a layer of fat in their organisations and they know it is there to be cut in tougher times. This layer creates a lot of the waste as it tries to justify its existence but once reduces frees up the rest of the organisation.


Worthy of a blog but I'll try to do it in a comment:
One of the companies i mentioned above they took the service catalogue to the Board and said "please rank these in order of importance to the business". then they allocated costs aaginst the services, went back to the board and said "look at this. the service you ranked 13th is the 3rd biggest cost to the business. So we will of course make the 10% cut you demanded there". "Very sensible" says the Chairman. "hang on" says another "that's email! You can't cut email!"

Exactly what u said Jan.

Economic reality

OK, not the last word. From the Economist March 12th 2009:

First, economic prospects are so dire that companies already in trouble will have difficulty surviving. Banks are trying to preserve their own capital and do not need to own any more toxic debt. Even if refinancing were available for endangered firms, it would be prohibitively dear. It is only a matter of time before some go under.

Moody’s cites 283 companies at greatest risk of default, including well-known outfits like Blockbuster, a video-rental chain, and MGM Mirage, a casino group. A year ago just 157 companies made the list. Standard & Poor’s says 35 have defaulted this year, against 12 in the same period in 2008. That translates into a default rate over the past 12 months of just 3.8%.

The rate is likely to increase sharply. Charles Himmelberg, a credit strategist at Goldman Sachs, forecasts that 14% of high-yield bonds will default this year, with the same proportion going phut in 2010.

and in the same edition:

There has been no hiding place for equity investors. Standard & Poor’s points out that all the major bourses are at least 50% below their peaks. Most of them are 60% down. It has been no use buying smaller stocks, or value stocks (those that look cheap in terms of earnings, assets or dividends); all have fallen by a similar amount. Diversification has been a washout: stockmarkets have been almost perfectly correlated with each other.

Rob Arnott, the former editor of the Financial Analysts Journal, says that the S&P 500’s decline in the six months to March 6th was the fastest since 1932. The fall in real terms from the high of 2000 has been exceeded only three times: in 1852-57, 1905-21 and 1929-32.

and again:

China’s exports plunged again in February, by 26% compared with the same month in 2008. Imports fell by 24%... The World Bank forecast that the global economy is likely to shrink this year for the first time since the second world war. In a paper prepared ahead of a meeting of finance ministers and central bankers from the G20, the bank gave warning of a jump in world poverty if private-sector creditors continue to shun developing countries, which face a potential financing shortfall of up to $700 billion. The bank also said that the rise in protectionist measures imposed since the start of the credit crisis presented a “serious threat in the current environment”

For those who don't know, protectionism fueled the Great Depression and always raises the threat of war.

Get real folks. You look undignified with your arses sticking in the air like that and you'll get sand in your ears.

IT Recession?

Hi -- found you from a twitter link. Curious to see that you mention Cloud / SaaS but don't spend much time on it. If you're one of the CC/SaaS kool aid drinkers (of which I am more and more one of them), that segment's whole goal is to eliminate the need for the current spend. Amazon Web Services (AWS) is an excellent example of this -- it wants to be your data center. And it's willing to offer you a ridiculously low price. There are plenty of other providers doing something similar.

What I'm more interested in is not whether this current spend is going away (it is) and how long it will be away (probably for good), but I'm curious to find out what will come after it. When IT talent frees up from the boring work of keeping the lights on they inevitably do something interesting. What's next?

I look forward to hearing your thoughts on that.

geek techno-fad

I'm just waiting for some articles I wrote to be puiblished elsewhere and i will blog on Cloud. I'm definitely NOT a fanatical supporter. i think it's another geek techno-fad.

But the key point about SaaS and Cloud here is that IF they are adopted on a larger scale in response to recession, they will drive even more IT people out of jobs - that is what they are for, greater efficiencies of scale.


We don't need firemen (in the railway sense) any more either. Is that a bad thing?

let's not delude ourselves

It is if you are a fireman.

I'm not explaining my point well. Seems to me the message on the web right now is "oh thank goodness that is over, it wasn't so bad was it?" or "Lucky we have our shit together in IT. We'll all weather this together and it just might be a wonderful opportunity". The reality is quite different. About 5-10% of IT people will lose their jobs (many more if we have a full Depression). Available funds for projects will be down by a lot, say 20-30%. The software and consulting industries will be hammered. Where I am, available consulting work has dropped by at least 30%. The little independent guys like me get it hardest: my available work is down 90%.

And the sun is not going to come out in 2009. Or 2010. Or even 2011.

So let's not delude ourselves and let's not take unnecessary risks: risks with the company's money or with our own careers. Relentless optimism is a virtue at the right time. When the horizon has disappeared in a wall of black, we've sold all the spare sails, the hull hasn't been overhauled in decades, and most of the crew are cadets is not the right time. And it is not the right time to try and install a diesel motor.

My message is that these optimists/denialists are sending a dangerous message. Sure this will drive change, and even deeper efficiencies. It'll also do damage. Personally and professionally we should be battening down the hatches. Money and jobs are about to get very scarce.

Agree on that

Yes it is tough and we've a long way to go, and there often casualties late in the day during a recession, even as the light at the tunnel starts to grow larger.

As consultants we need to take our own advice and reinvent ourselves for the times, looking at the types of product we offer and the clients we want to work with.

Good article

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