Negotiationg Downturns

A tough market doesn't mean that CIOs can put projects on hold. One way to push along the recovery is to strive for IT optimization via innovative solutions. Moderated by Phil Albinus

Surviving the current economic downturn will not come from hiding your head in the sand. The only route to success is through cutting-edge IT projects and initiatives. Industry observers believe that cost-cutting efforts will result in a jump in the use of global IT sourcing as well as a significant shift in sourcing strategies. This will lead to outsourcing service providers bringing in innovative solution approaches bundled with synergetic pricing.

Earlier this year, Waters hosted a webinar entitled Negotiating Downturn: IT Optimization via Innovative Solutions, which was sponsored by Infosys Technologies. We discussed how IT sourcing strategies are shifting in the current cost-cutting environment, where innovative solutions can be brought in by outsourcing vendors that will help reduce costs, and how today's CIOs are preparing for the recovery.               

Our panel consisted of Bob McDowall, research director, Europe, with TowerGroup; Susan Certoma, former CIO of Wachovia investment bank and currently COO of Broadridge; and Munjay Singh, associate vice president and divisional manager of banking and capital market units for Infosys Technologies.

Waters: Are banks outsourcing more in response to the crisis or are they returning to build the core functions and mission-critical operations inside their own walls with their own IT teams?

Munjay Singh, Infosys Technologies: It's a mixed bag. Some investment firms are reacting to the risk and moving critical functions in-house, whereas others are outsourcing due to the fact that they are worried about building competitive advantage. Whatever they do, I think all firms are looking at their sourcing strategy assumptions and trying to source it from a different location in a different time zone from what they have done in the past.

Waters: Susan, as a former CIO, what was the decision-making process inside the major firms when the crisis hit? What were the priorities?

Susan Certoma, former CIO: I think two years ago when the downturn initially started there was a bit of a lag in responding to what people were seeing. At that point people didn't understand the extent to which the economy would go into this downturn, but soon after that the focus shifted toward significant cost reduction and as the downturn rippled from the capital markets space into the credit spaces, there were big pushes on cost. They wanted to be able to process less and levels of business were going down, so they were not worried about the productivity piece. They were more worried about where they could push their costs down for the reduced revenue or even negative revenue that they were seeing.

The senior leaders in the firms understood that this is cyclical and although the cycle may be longer than many of us have seen, the firms that will come out of this-not only surviving it but being leaders-are also going to have to think of the long term.

Waters: Are firms actively preparing for the recovery and if so, what should they be working on?

Bob McDowall, TowerGroup: I'm afraid firms are managing themselves along the bottom, taking a tactical view at the moment, and not actively preparing for recovery. What should they be working on? They should be equipping themselves with tools that will enable them to recover and perform in a world of recovery and that particularly is assessing the risk of regulatory hurdles and the capital hurdle. They should be looking at the models that they have or want to have, but I'm afraid they are not acting as actively as they should be.

Waters: Is it because the dust is still settling?

McDowall: The dust is settling; politics and finance have become inextricably linked and I feel that the industry is looking for a little bit of leadership from politicians, dare I say it. I think the industry has to provide the leadership itself and I don't see that coming through strongly at the moment.    

Waters: Susan, are people taking a very tactical approach right now? Are they waiting for some guidance to come from outside the bank to work on projects?

Certoma: I think you will find the bulk of people being more tactical. You will find a bulk of people hunkering in the bunker. You will find people just continuing to focus on cost. It is the small cadre of more innovative leaders that are staying tactical and hunkering that are making no decisions and not just giving up because of the environment. I agree with Bob that it is probably the route that many are taking, but there is a small sector that has done their homework, that knows how to lead organizations that are pushing for that and those are the firms that will become the leaders.

Singh: Most of them are taking tactical steps now, but there are a few that are plotting their competitive advantage by using technology. These are the ones that are still ahead of competition and when the recovery starts they will be quick to capitalize and will end up capturing the market. The majority are still trying to survive and look at the next term, but there are a small minority of business leaders who are taking the steps they need to innovate.

Waters: Are the days of the large-scale IT project over?

Certoma: I've worked at different firms, some of which had large multiple-year IT projects and others that took smaller bite-sized projects. From my perspective people are looking at smaller-scale projects these days, obviously. You actually have to show for some of the work you're doing that you're going to see an immediate return on the investment that you're asking for. I think even in good times the large aspect is the vision or the target. Then you have to be able to deliver in small increments along that vision, because delivering in a year or two years-no one has the stomach for that and no one will commit to that. The business changes too fast for that and it is becoming yesterday's news.

Singh: I agree with Susan; now when every business leader is questioning every dollar being spent, because the business cycles are shortening and they are very critical if they don't see an outcome very soon, so the trend is that you have to build something, an idea. You have to have a long-term vision, so you might have a multi-year program, but then there's an incremental value for business that has to keep coming, the level of frequency.

Waters: What will the top three imperatives for financial services firms be in the next quarter and the next year?

McDowall: Let me put it in my order. Addressing the risk profile that you wish to assume is the first one; the second is addressing increased regulatory tension across the world. We are not going to have one nice regulatory environment. I think the third one is delivering the technology and other services that help re-engender trust and faith from your stakeholders, depositors, investment clients and in some cases, employees.

Singh: I think the first one would be looking at survival and the regulatory environment. Most of them have survived, so that's the first thing-they can survive-so now they are looking at how to play in the new world. The second would be to innovate and the third would be to get the competitive advantage so that when the market opens they are able to capture the market.

Waters: Susan, we have a new administration in the US and everybody seems to be bracing for more compliance and regulatory oversight. As a former CIO, what is the thought process inside the IT meeting rooms right now?

Certoma: It comes down to the perspective of leadership. For some it would be a hindrance because they will take some of the regulatory constraints at face value and just implement them on top of what they have today, but from a true leader's perspective, those constraints often drive innovation. It's difficult times and challenges that often force people to think very differently about how they can achieve these things. The regulatory burden is huge and even if there are those mandatory burdens, firms do not want to spend that money. They are looking for people to step up and show how they can actually achieve this and how they can automate a lot of this. Unfortunately, in most firms still it is a very manual and technology-heavy way to gather the data, to report that data, and I do think constraints drive innovation if you have the right leadership mindset.

Waters: For our final question I am going to ask our panelists to look into their crystal balls at the future. What will the remainder of the year look like? Will we see a recovery?

McDowall: A very slow recovery indeed, but certainly some recovery. There is hope for it. IT innovation won't lead the charge, but it is absolutely necessary to have the right innovative skills and tools with you as you look to the real recovery. It's important equipment to have.

Certoma: I think in 2009 we are still going to see fluctuations; there will be glimmers of improvement and then we'll see downturn, so I do think we will see volatility through the rest of 2009. I think people will still be very hesitant and we are seeing it in the firms now. They want to bring in top talent; they want to push for certain things, but it is taking them a very long cycle to do that. I think we are not going to see more of a steady type recovery until 2010. I agree that IT innovation won't be leading during 2009, but I do think that the leaders who come out in 2010 and beyond are those who are going to be creative.

Singh: There will be a slow and steady recovery. We also believe that companies will have to start focusing on innovation to lead the charge, because if you have to capture the market in 2010 or 2011, people are starting to invest in some of the innovative stuff now and I think this will differentiate between an organization and their competition and will help decide the future. -->