Extreme volatility and uncertainty are plaguing all enterprises operating in the eurozone, and CIOs must act immediately to protect their enterprises, reports Gartner. The analyst firm says prudent CIOs need to safeguard their enterprises form the risks of government/bank default, euro break-up, counterparty bankruptcy and employee/customer distress. David Furlonger, Gartner vice president says CIOs are the only executives with sufficient visibility and potential capability to address the challenges posed by the crisis. "Business leaders are crying out for CIOs to demonstrate more effectively the capability of IT and, specifically, to add value to the business. Therefore, this crisis also presents CIOs with an opportunity to make substantial and bold steps to meet CEO demands, and demonstrate the importance and true value of IT." "Unlike recent economic difficulties, today's crisis has the potential to totally undermine the eurozone, the whole EU and beyond," says Andrea Di Maio, Gartner vice president. "Spurred on by the pervasiveness of the internet, the crisis negatively affects every enterprise or individual doing business in or with the region. The CIO's top responsibility is to guarantee business continuity." Gartner analysts list four broad challenges the euro crisis raises, and how CIOs can help the enterprise manage these: Challenge 1: Market volatility
Most enterprises and their IT departments are burdened with significant numbers of bureaucratic processes and latent decision-making mechanisms. Today's market conditions require business and government executives to radically restructure their business practices. "Market conditions require CIOs to help develop a working environment that promotes speed, agility and adaptability — without sacrificing accountability," says Di Maio. "Change management capabilities will be critical. The foundation to achieve effective change management will demand information, analytics, HR flexibility and a more decentralised command-and-control management structure." Challenge 2: Capital costs
The costs of and access to capital across Europe will likely continue to worsen until there is a significant redress in structural imbalances between countries and organisations. Unwillingness or inability to write off debt and restructure public and private sector balance sheets is a substantial barrier to market efficiency. Lines of credit will likely become uncertain or removed, forcing corporations to reduce inventory. "In this situation, CIOs will face zero-growth budgeting at best, and substantial reductions in both the investment capital and the operational budget made available to run the business at worst," says Furlonger. "If a market meltdown occurs, then critical resources and supplies may be at risk. CIOs and other executives must develop contingency plans to ensure multiple backups." Challenge 3: Human capital management
Millions of people are out of work in Europe. Formal government austerity packages and informal corporate restrictions on salaries, benefits and working conditions, combined with high costs of living, are stressing workforces. This situation is compounded by retirement funding shortfalls, extensions in the working age and loss of benefits. CIOs and business executives face significant HR issues in rewarding and motivating staff, securing funds to hire appropriate new talent, and dealing with the personnel hardships of individuals entering the work environment, which impair productivity, says Di Maio. "They must also plan for retention issues of foreign workers moving to better opportunities or the removal of non-EU work permits and visas in response to political backlash from rapidly rising unemployment, resulting in a 'brain drain'." Challenge 4: Risk management
The capital markets (and many corporations) believe the risk of government and counterparty default is substantial. Receivables management is being stressed, and the likelihood of internal and external fraud rises. From an IT standpoint, operational risk is heightened via issues such as changes in contractual obligations and business continuity. Before the crisis, enterprises were already challenged to identify enterprise-wide risks in a holistic fashion to link those risks to the performance of the business and to manage risk in a time-effective manner, says Furlonger. The CIO and other executives like the corporate treasurer and CFO need to ask questions such as, ‘Can existing risk models accommodate alternatives to the lack of historical data (in many cases, as much as three years of back data is required) necessary for regression testing/yield curve analysis of hedges, and for stressing asset and liability portfolios in the event of a redenomination in all or part of their asset and liability portfolio?’
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