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November 11, 2009

CIOs must prepare for the ‘new normal’

McKinsey reports highlights need for long-term thinking

By Steve Evans

The recent economic situation has created a ‘new normal’ for IT bosses, where they are expected to ensure that their organisation thrives despite increased uncertainty and volatility in the industry, according to a new report by McKinsey.

The report, called ‘Time to Raise the CIO’s Game: A Call to Action for European Companies’, claims that businesses now realise the current economic turmoil is not just another turn of the business cycle but a restructuring of economic order. CIOs should not look at short-term cost reductions but instead use the opportunity to implement changes that have long-term benefits, the report said.

The report highlighted three key objectives that CIOs must achieve if they are to success in the new normal: align IT and the business, to improve collaboration throughout the firm and to enable IT to be used to enhance the rest of the business; close the performance gap by restructuring the IT function to improve productivity and change the company’s operating model and cost structure with IT-enabled business processes; and enable transformative moves, which involves improving innovation and experimentation throughout the company.

Speaking at an event to mark the launch of the report, Pär Edin, a director at McKinsey, said: “Uncertainty is the new normal, so it’s important to think beyond that and plan for the future. One of the key areas for organisational change is aligning IT and the business. There has been an improvement in that but it is far from where it could be.”

Another key area for CIOs to focus on the performance gap. “Put simply, it means what you spend on IT and what you get out of it,” Edin said. “There has been improvement here but more is needed. However, when it comes to using IT to improve the productivity of the rest of the business, there is still a big gap.”

One of the reasons behind this could be that European CIOs are far less likely to report to their CEO than their US counterparts are. Only 31% of Euro CIOs reported to the person at the top compared to 56% of North American CIOs. Edin was at a loss to explain the difference. “I think partly it has to do with history, and Europe being made up of many different nations. With the growth of companies spanning nations it’s possible there is a lag in the way different functions operate,” he told CBR.

The report speculates that this could suggest a bias on the part of business leaders for IT leadership to focus on back-office operations, rather than on leading strategy and growth. The McKinsey paper also reveals that a third of European IT and business executives did not view IT as among the top three levers in creating a competitive advantage.

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It appears that most executives are aware that they need to change their approach if they are to succeed in the new normal. Just under one-third (31%) said that the development of new products and services in response to changing consumption patterns was a priority.

The recession will mean profound changes across the industry, with no return to the way companies operated before the economic crisis hit, said Cisco’s European markets president Chris Dedicoat.

“The recession has forced people to look really deeply into their budgets and have identified where investment will enable them to be more productive going forward than they were before,” he said at the launch of the report. “It’s not just about implementing technology; it’s about changing business process and behaviour.”

 

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