European crisis

CIOs don’t need to read any comprehensive Chaos Manor report to know that project deliveries come always in late and are never or rarely in advance. It is like flights or train travels, things always happen in such way. They undergo asymmetric events. If we try to get measures of it, we could find that when projects portfolio undergo 2 months delay in average on delivery planned time, there is no or few chance any project will be above 10 months delay, but real chance to have 30 above 2 months for hundred projects portfolio.

IT budgets always increase year after year. It is their fate since new projects increase IS functions and, consequently, yearly maintenance. To cope with this situation, CIOs have settled portfolio management process:they assess projects from several points of view -technical, business, risks, strategy…- and make priorities. It results in postponing low prority projects…

After a while, postponed projects pile up like sand and become high priority. So, IT budgets contain also low priority projects which have become high prority for budget year.

Finally, projects portfolio is viewed by Business units as postponing facility on behalf of IT Division. No matter Business units are main projects issuers who make IT budget growing. Moreover they use to complain for additional IT costs though they are not accountable for expected gains which projects business cases have set under their responsibility.

When a project is delayed, costs usually increase in proportion of the time. So current IT capital expenditure budget is also made of slipped projects pieces as current IT operations expenditure budget still contains projects slipped since they have already rolled out platforms.

As current IT budget is flood of slipped past projects, less and less room remains for new ones. Negotiations are hard. Pure IT projects are scrutinized and often postponed if they have not a strong costs saving business case. So are pieces around Business projects that not seem to be required to Business even though IT has stated they are highly desirable.

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European economic prospects are gloomy. Just have a look to newspapers frontpages if you are not yet convinced. In such context, as I wrote once, best strategy would be to “be prepared to start again“. That means to be aligned with customers expectations and to be competitive when business will start, in short, having a good position, on good place, at good price. Yet every european companies have cut at first their 2012 budget to save cash which threatens to rarefy.

Then, for most of companies, business equation will be : transforming themselves while saving capital spending

Currently, Europe is hit by a severe liquidity crisis which have its roots in questionable solvency of states which spread to banks. Financial european world does not trust each other and borrows liquidities at very high interest rates which darken states and banks solvency more and more. How to get out this revolving door circle is the question which hogs every european summits for months.

What is taking out from all that: the urge to restart cash machine by restoring economic growth based on enterprises competitivity. Several medicines are contemplated : euro depreciation which lower prices but rise fears of capital shrinking and more questions on solvency, frugal states budget and tax cuts which mitigate unit labour costs but rise fears on social model and states solvency. Anyway, all this would take time and is drawing a bleak outlook for next years.

Then, according to their own prospects enterprises would follow 2 strategies :

be prepared : get slimmer and stay prepared for economy recovery
be active : contribute to restore growth and transforming themselves to be more competitive

For these enterprises, the point is how to improve competitivity in such economic context with relatively high unit labour costs ? Just in remembering that competitivity is also productivity, better quality, better time to market, better customer knowing… For that, good technology is obviously a critical success factor, may be the only one since all businesses are by now tightly coupled with technology.

Then how to get transformed while saving capital expenditure ?

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Tag: European crisis

That’s why my friends CIOs need the best whishes for 2012.

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