Riding Out the IT Perfect Storm

Back in the IT good old days — just three or four years ago — money was plentiful, nearly all projects wereapproved, expanding bandwidth and the Internet made all things possible, and confidence in the economy ran high.

What happened next has been described by Harvard University lecturer and author David Collis as the perfect IT storm — the confluence of three bad things all happening at once. The Internet bubble burst, the recession began, and the IT market matured. Additionally, companies began suffering from a cyclical slowdown outside of their IT departments.

These rough seas eventually will smooth out, but whatcan a CIO do until his or her company finds calmer waters?

Identify Your Vision

Collis, a senior lecturer at Harvard’s business school and the author of “Creating Corporate Advantage,” a book about corporate strategy, said that in rough times, all companies must start with a solid understanding of their strategy, strength and competitive advantage. These factors must drive all of a company’s choices and decisions, giving it a rationale for everything it does.

Collis told the E-Commerce Times that three or four years ago, many companies were funding any project — even if itwas destructive to shareholder value. Today, in contrast, it is generally difficult to fund initiatives at all, as belt-tightening has forced companies to invest only in projects that have real potential to create value.

Rather than cutting all projects, however, companies are realizing the benefits of deferring some of them, Collis said. This requires a sort of prioritizing, since many IT projects are easy to defer, while others, such as advertising campaigns, are not.

Invest in the Future

In addition, even with money as tight as it is today, companies must find a way to fund future growth without cutting the critical competencies and resources that give them their competitive advantage. Collis noted that over the past couple of years, as companies have sought ways to become more efficient, they have had the opportunity to invest some of those savings in future growth.

The trick is to carefully select investment areas, he said. Companies need to create a portfolio of higher-risk, longer-term projects as well as more certain, shorter-term projects, resisting the impulse to choose only less risky projects when budgeting funds.

Employees Are Number One

Employee costs, such as headcount, salaries and benefits, are easy targets in budget reduction efforts. However, cuts in these areas can damage employee morale, especially if reasons for the cuts are not clearly communicated to the workforce, Frost & Sullivan industry analyst Rod Woodward told the E-Commerce Times.

The best thing a company can have is leaders with agood vision of where the company is going, Woodwardsaid, noting that those leaders must share their vision so that there is no uncertainty among employees. Wheneveryone understands the long-term vision, no one gets bogged down by short-term problems.

He added that once a company has pinpointed the mission-critical pieces of its business, it must identify the key people in the organization and keep them as happy as possible. “These are the people that are going to bring your company back to profitability,” he said. “Managers must know which people are going to take them into the future, and tell them that if they are there for the long haul, there will be good opportunities for them going forward.”

For example, BroadVision CEO Pehong Chen told the E-Commerce Times that his company places a high priority on valuing its employees and making sure each one feels good about his or her contribution to the company and its future. He added that BroadVision also makes sure its vision is communicated to employees so that they understand why they are a part of the company.

A Captain at Sea

After several difficult years, BroadVision is still riding out the storm; in fact, it turned the corner in the first quarter of 2003, becoming profitable again. “The lesson learned here is that we need to focus for the benefit of the customer as well as ourselves,” Chen said, “and although that’s an easy thing to say, there is a lot of real benefit in believing it. In a tough economy, many companies like ours get most of their business from their existing installed base, so it’s important to keep those customers happy by giving themgood service.”

He explained that his company’s recovery has been based on three tenets. First, it has been critical that BroadVision believes in what it is doing. “That means having a long-term vision about what it is that we are providing to the market and to our customers,” Chen said. “It’s something that has been the underpinning of our whole organization.” He noted that through good and bad times, this has not changed. “But that vision by itself doesn’t do a whole lot unless you deliver, so secondly, along with our vision, we’ve had nonstop investment in our research and development, and we’ve been very dogged about that.

“Third has been to communicate, communicate andcommunicate,” Chen added. “Make sure everyoneunderstands and agrees that we are hunkering down andreducing a lot of the perks and programs that we had,but that doesn’t mean they won’t return. As a vendorin the IT business, we certainly have been taking somepain, but now that we see our business stabilizing andreturning to profitability, if we see the market moving in a positive direction, we may then see a return to spending in other areas.”

Do Not Repeat Mistakes

When the economy does turn around, companies undoubtedly will try not to repeat mistakes they made in the past. Collis noted that if a company truly understands what makes it successful, it becomes much easier for it to avoid missteps.

One mistake to avoid is overhiring as soon as things look brighter, Woodward said. “Once you’ve gone through the valley, and you’re down to a core group ofpeople that you know are dedicated and loyal and will stick with the company through good times and bad, don’t start hiring and hiring and hiring at the firstsign of opportunity. You’ve already reduced your operational costs, and employees are the one operational cost a company can truly control.”

For example, Chen noted that when BroadVision was forced to reduce its workforce, its remaining employees took the opportunity to become more versatile. In the future, when momentum swings upward again, BroadVision will benefit from having a leaner, more efficient organization that can deal with the new environment.

As another example, Woodward noted that the telecom industry is keeping a rein on hiring by engaging in success-based investing. In other words, many telecom companies will not provide a service — and hire additional employees to provide it — until they first determine that there is a committed market, such as a number of buildings or a number of people in a network. “Don’t presume customers will appear just because the economy is starting to look good,” Woodward said.

Lessons Learned

Because of its struggle during the last few years, Chen said, BroadVision has absorbedmany hard lessons. “I think that what we have really learned is that the customer, without any question, is our number-one priority,” he noted. “I think that when we were much bigger and demand was much stronger, we also got spread too thin and wanted to do too many things.”

He added that, like most companies in the boom era, BroadVision spent significant resources on things it would have eschewed if it had been more focused. Now that the company has a chance to grow again, Chen said, it will be a lot smarter in terms of where it invests resources, and it will focus on investments that are the most relevant to its customers.

“I think that in the bubble that we all went through, the biggest excitement, as well as the biggest potential pitfall, was that it was all very enticing. The demand seemed to be there forever, and then you tried to grab the market share by expanding. I think that’s what really caused this recession over the past two to three years: this overcapacity. People went and bought a lot of things that they thought they needed without giving it enough time to digest [it] all.”

In the future, Chen said, BroadVision will chase sustainable growth rather than skyrocketing numbers. “Companies need to focus on what their core competency is, and they need to focus on what their customers’ needs are, and then really do a superb job in those two areas, rather than spreading themselves too thin or trying to grow too fast in the name of market share.”

It remains to be seen if most companies will heed this advice, but the next boom era might be better grounded if they do.