15 March 2009 |

How to turn the crisis into your advantage 

By Per Andersen, Managing Director, IDC Nordic

Since the meltdown of financial systems and stock markets gathered pace in recent quarters, economists have drastically reduced their expectations for underlying GDP growth in 2009.

The rapid collapse and subsequent bailout of the global banking system and ensuing economic turmoil have created a radically different context for global economic growth.

This sudden change of the macroeconomic picture has necessitated a review of how companies are expected to invest in IT during 2009 and beyond. IDC is constantly monitoring the impact to IT spending from the recession and recently lowered its outlook for the Nordic region to 0.6% IT growth in 2009 compared to 4.5% growth last year.

However, the most forward-looking companies are not just cutting back on IT spending from a pure cost perspective. Instead they are looking at how IT can support an offensive strategy to make the company even more competitive.

This can become a key differentiator for the company. A study by Bain & Company found that twice as many companies made the leap from laggards to leaders during the last recession as during surrounding periods of economic calm. The study found more than a fifth of companies in the bottom quartile in their industries jumped to the top quartile during the last recession. Meanwhile, more than a fifth of all “leadership companies” – those in the top quartile of financial performance in their industry – fell to the bottom quartile.

Companies are aware of this, and many companies are planning strategies that leverage the opportunities the recession provides.

In January this year, IDC carried out a survey of Danish companies. We asked them, how they are going to react to the crises.

First of all, companies want to reduce costs by making operations more efficient (as opposed to cutting away operations). Here IT can play a key roll in optimising processes and increased automation of activities. While this is not any new aspect of IT deployment, the crises accelerates the focus on this. There is a wide range of examples of how IT support process optimization; some are related to improving collaborative processes in the company, some are related to improving the use of information and some are related to optimizing production and distribution of goods.

Customer self service through portals and Web 2.0 technologies is an archetypical example of an area where companies can leverage new technologies to change business process and reduce the resources needed for servicing customers.

Even within IT there is need to improve use of resources. We expect an increasing focus on optimizing the use of already purchased software, expansion of virtualization to leverage infrastructure resources and deployment of IT asset management/ITIL.

Almost as important as making operations more efficient is prioritization of increased focus on customers and on innovation. These business-oriented objectives lend themselves to IT investments as long as there are carefully considered business cases. In many instances there will be a strong business case, although the focus in today's environment will tend to be a short term payback.

Prioritization of customers will result in investments that can demonstrate value to the company here and now. IDC expects to see relatively strong growth in investments in sales force automation, analytical tools for understanding customers segments and other customer applications. Pulling customers closer to the company, increase understanding of business opportunities and become top of mind are some of the executive headlines when the market is tough.

Similarly, innovation tends to become short-term oriented. We do not expect to see companies invest in long-term strategic product development as much as innovation will be applied to existing processes and services. This enables companies to address existing foothold markets in a new way or to address new customer segments with existing products – or to reinvent the go-to-market strategies.

Most of these initiatives make sense whether we are in a recession or not and are probably already part of the overall IT priorities. The majority of companies also agree, that the recession does not change the fundamental IT strategies of the company. But the key point here is that companies prioritize projects in a different way – projects that most clearly support customer focus, innovation and process effectiveness stand a better chance to be funded.

The Danish survey thus underlines, that companies do address the opportunities that exist in a downturn – and we are confident that those companies that are most focused on executing these strategies will come out the strongest. Research also shows that the effect of an improved market position lasts, even several years following the end of the crises.