Your Plans for Recovery

By Larry Dignan  |  Posted 2003-11-06 Print this article Print

?"> "Growth should pick up in the economy over the next year-and-a-half or so, enough to spur companies to hire," says Gus Faucher, senior economist at One example: IBM, a beneficiary of renewed technology spending. The computer-services giant reported net income gained 90 percent to $4.87 billion on revenue of $63.2 billion for the nine months ended Sept. 30, compared to the same period a year ago. Now it hopes to add 10,000 jobs next year in services, middleware and Linux divisions. IBM ended 2002 with 315,000 employees.
Given the data, technology executives need to begin formulating plans for a better economic environment, experts such as McLean say. That means:
  • Prospecting for talent that may become more costly in an upturn;
  • Starting projects whose benefits you will need as business gains strength in 2004 and 2005;
  • Speeding up execution of current projects. If Charles G. McCaig, senior vice president, information technology at Chubb, gets some budget room, one of his first projects will involve moving his family of property- and casualty-insurance companies onto one unified set of hardware, software and data systems. Currently, Chubbs global businesses have different databases, nomenclatures and systems to monitor various insurance products such as property, marine and casualty insurance. McCaigs goal: create common definitions of information on insurance policies and unified-tracking systems so Chubb can determine profitability by customer, product, and the risks involved with each product. "Theres an opportunity to have transparent information across all products," he says. "We have a global infrastructure, but dont have a global information system. The more money we get, the more things we can do there." For the last two years, projects have focused mainly on cutting costs and achieving returns in fewer than six months, but that could change to target implementations with a longer payoff. However, few see their higher-ups approving many projects with a return more than a year away, say executives. In better economic times, executives may consider being more aggressive, either about new projects or the timelines to complete existing installations. One way it may play out: Instead of a $10-million project being dragged out over five years it may be expedited to be done in three. McLean says executives should also focus on stockpiling talent, which will become more expensive as the economy improves. According to Mercer Human Resources Consultants, a senior project manager at a mid to large-size company averaged a median cash and bonus salary of $95,000 in 2003, up from $87,400 in 2001. If pay increases rebound from the average 3.3 percent today to the 4.2 percent rate in 2000, that project manager will cost $99,000 by the end of 2004. Among other items on the budget in an improving economy: All the technology maintenance—hardware replacement, database cleanup and unification, process documentation—that fell by the wayside while times were tight. In a recent survey sponsored by SIM, executives listed business intelligence as a top priority, which hints that technology managers may be a little more optimistic, says McLean: Those tools dont have a clear return. The return on business-intelligence software varies by company, but one way to justify it would be as another step to make data-warehousing projects pay off. Many companies have vast data stores, but dont effectively make decisions on the data. Ian Campbell, president and chief executive officer of Nucleus Research, says the return on business intelligence is largely intangible, but likely to become more popular as businesses see it as a way to make more-informed decisions. He recommends projecting a best-case scenario, say cutting expenses 1 percent, and a worst case such as saving just a tenth of 1 percent. June Drewry, chief information officer at AON Corp., says she expects collaboration technology to move higher on executive shopping lists if the economy shows steady improvement. "Margins are still tight, but these technologies—like WebEx, Microsofts NetMeeting and videoconferencing—bring together people and enhance productivity," she says. "These projects will be done in a small way—they increase productivity, but its not as easy to show a return because people arent being cut." For collaboration projects, the justification is lower travel expenditures, ideally a cut of 5 percent to 10 percent, says Campbell. What do such potential projects have in common? For starters, executives arent actively pushing to budget these projects for 2004. Instead, they are making a mental note in case the economy improves. In an upturn, items like business intelligence, e-learning and collaboration are viewed as important to the business even if they deliver "soft," or murky returns, executives say. "I think CIOs have a lot of things in what Id call their hope chest wish list," says Bruce Carver, chief information officer at Pepsicos Beverages and Foods unit. "Most of these projects will still have hard benefits, but projects with soft benefits that are near the customer could get done." The big question for analysts and executives alike is what factors might prod companies to launch these "ideal-world" projects. The short answers are time and a clear case that the economy is out of its rut. The shorter answer: A close rival gets going first. "It will take a company in your industry using technology to gain a competitive advantage, says Chubbs McCaig. "Once thats clear, other companies will move." By then it might be too late.

    Business Editor
    Larry formerly served as the East Coast news editor and Finance Editor at CNET Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

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