After bringing the longest bull market in U.S. history to a jarring end, the growing COVID-19 crisis is continuing to batter markets. Now, organizations are preparing for the long-term financial fallout.
The question is no longer if COVID-19 will cause an extended economic contraction, but how long and severe that contraction will be. Despite central banks around the world slashing interest rates to zero and announcing massive QE packages, Goldman Sachs still expects U.S. growth to contract 24% over Q2 alone.
But what does all this mean for ITFM/TBM? Can it help CIOs and technology leaders navigate a market downturn like this one?
The answer is yes. But to understand why, we first have to explain the…
Historically, times of economic turmoil tend to create a significant uptick in interest around ITFM/TBM and its supporting software — a phenomenon Nicus, as well as our partners and competitors, have witnessed first hand.
Ultimately, there are three core reasons why this is the case…
If an organization must cut costs to weather a financial crisis, it isn’t just trying to spend less; the real goal is to spend less with minimal disruption and risk.
That’s exactly what ITFM/TBM enables: informed cost optimization that only trims the fat vs. blind “slash-and-burn” cuts that put the organization’s current and future capacity in jeopardy. Without defensible transparency of costs, there’s no way to tell what’s fat and what isn’t — leaving IT leaders unarmed to fight sweeping budget cuts that will degrade service quality.
However, when CIOs are ready to defend their budgets and the value they deliver, this type of scenario plays out very differently.
Larry Wolff’s experience as CIO at Reed Elsevier during the early 2000’s recession illustrates this perfectly. Mary Pratt explains further via CIO.com:
“His [Larry’s] CEO at the time issued across-the-board cuts, sparing only IT. Wolff says the executive team supported that decision because he consistently articulated where and how technology initiatives were generating not only savings but actual revenue growth, too.”
When businesses look to cut IT spend in response to economic turbulence, innovation dollars are typically the first to get the knife. But strategic innovation investments made during extended market downturns are often what separate the “winners” from the “losers” once the downturn is over.
Tom Holland and Jeff Katzin with Bain & Company explain further:
“Think of a recession as a sharp curve on an auto racetrack—the best place to pass competitors, but requiring more skill than straightaways. The best drivers apply the brakes just ahead of the curve (they take out excess costs), turn hard toward the apex of the curve (identify the short list of projects that will form the next business model), and accelerate hard out of the curve (spend and hire before markets have rebounded).”
Tom Hoffman, senior research director with HMG Strategy, echoes this sentiment via CIO.com:
“CIOs need to reinforce with the CEO the fact that, if there is a downturn in the economy, it’s not a good time to cut into any innovation spending. Research shows that companies that continue to invest in innovations during downturns fare better financially over the long run.”
Even after a “trigger event” like COVID-19 is over, business leaders will still face considerable volatility for months or years after — until the economy fully corrects and begins expanding once again. However long this period of volatility lasts, the key to successfully operating over its duration is this: fast, informed decision-making.
When times are easy, great decisions get you ahead. But when times are hard, great decisions get you by.
Fortuitously, this exact issue was addressed late last year in Gartner’s 2020 CIO Agenda: Winning in the Turns — an analysis of what makes organizations “fit” or “fragile” when navigating a crisis.
Furthermore, the report states that centralized allocation processes — a core component of any ITFM/TBM program — appear to be a critical enabler of agile decision-making in challenging conditions.
Gartner explains further, saying:
“The interesting and surprising insight is that fit organizations are more likely to have centralized resource allocation processes, not the devolved budgets that might have been expected. In a crisis, you need someone to make the decisions, not a decentralized committee.”
The economic cost of COVID-19 is utterly trivial in comparison to its human cost. But all of us — individuals and business alike — must forge the best path forward for ourselves and those we care for.
For individuals, that means social distancing to protect strangers’ lives. For businesses, it means financial diligence to protect employees’ lives.
Reach out today to hear how we can help.