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Thriving through the downturn

Thriving through the downturn

CIOs and industry vendors speaking at this year’s MIS100 event deliver valued insights for charting an intelligent management course through uncertain economic times.

An analysis of the top projects CIOs have undertaken in the past year, and plan to undertake in the next 12 months, reveals CIOs are increasingly taking on the mantle of chief transformation officers. Transformation is a key theme for CIOs this year, says Computerworld editor Rob O’Neill, in his analysis of the research findings in this year’s MIS100, the annual report on the leading ICT user organisations in New Zealand.

O’Neill says this can be gleaned from the top three projects CIOs cited as priorities in the next 12 months: business continuity/disaster recovery, virtualisation and business intelligence.

“We see a picture of CIOs striving for transformation, to work smarter and provide new insights, better effectiveness and improved automation for their business.”

Riding the turbulence

Kevin Drinkwater, CIO for Mainfreight, favoured airline analogies as he describes the turbulent effect of the economy on Mainfreight’s business and its ICT priorities for the next 12 months.

He says “graveyard” spirals typically occur in flight when a pilot loses awareness of an aircraft’s attitude and cited research suggesting more than half of all in-flight structural break ups could be traced to maintenance and pre-flight check errors. It was an analogy regarding the need for IT departments to pay attention to operational efficiencies, even when under pressure to make recession-related cost reductions.

“For the first time ever I have had a cut in IT spending. We have had to cut spending on proactive maintenance and have had a 45 percent reduction in development spend. We are not doing the ‘nice to have’ things anymore. But it takes a lot to keep the lights on and keep things running. It’s not easy to just drop people out of your operation,” says Drinkwater.

Despite the effect of the economic downturn, he says customers will always seek greater efficiencies and businesses will always keep spending.

Airline analogies are suited to Mainfreight, an NZ$1.27 billion organisation that processes 75,000 domestic and 8500 international freight movements per week in New Zealand, Australia, the US, China, Taiwan and Hong Kong. Drinkwater says success during a recession is partly dependant on mutual collaboration between CIOs and IT vendors, each of which need the other for a secure future. He has found that IT vendors are willing to negotiate hourly rates and conditions in recognition of a long-standing relationship and mutual trust.

“Vendors need to keep their key personnel and we want access to their key personnel. If companies decide to extend all their equipment out to five years, how do vendors survive? If the vendors don’t have jobs, then how can we do our jobs?”

He says a key business strategy for Mainfreight is collaboration and leveraging existing business relationships, though the business is also focussed on taking advantage of recession-driven lulls to improve the business and its processes. Examples include upskilling IT staff and having the time to conduct ICT audits and checks, as well as making the time to plan and strategise in order to stay ahead of the market.

“Never waste a good recession,” says Drinkwater.

No going back

This is also the catch cry of Ullrich Loeffler, country manager for IDC New Zealand. Loeffler says a recession presents sudden opportunity, citing HP, CNN, Burger King and IBM as successful companies all launched at various times of global recession.

“Businesses learn to run in the dark, to see the world differently. The journey is always forward and there is no going back.”

Loeffler says it is difficult for any research firm to predict the probable end of the current recession. He cites projections made by IMA Asia of a 10 percent probability the global economy will recover in the second half of this year, a 40 percent probability recovery will occur sometime in 2010 and a 50 percent probability it will occur in 2011 or beyond. Meanwhile, IDC projects that global IT spending will decline by 4.7 percent to the end of 2009, and will recover to positive growth of 2.2 percent for 2011.

Closer to home, a survey of 259 local ICT decision makers found a 34 percent decrease in both capital and operational expenditure for the current year. IT staff growth is, not surprisingly, predicted to be “flat”, yet the number of mobile internet users is projected to treble, while the amount of data held within organisations is expected to quadruple and put pressure on important IT systems such as storage. Growth in traditional IT equipment and service spending is projected at 5.5 percent over the next five years, along with 7.7 percent for spending on consumer electronics, new telecommunications systems and BPO systems and IT tools.

“So the devices being used are increasing while IT staffing remains flat. How to cope? Don’t just add new devices and hope to get through. Step back and get IT partners to step back with you to re-assess management of devices and information,” says Loeffler.

In search of savings

Kerry Sims, country manager for Hitachi Data Systems, says as a vendor organisation HDC is doing its utmost to do just that, by offering to reassess the cost of IT storage along with storage access and security for customers.

He says power, cooling and storage management costs are all rising with storage wide open to cost reductions.

“Hardware prices continue to fall. However, the cost for managing an ever-growing portfolio of physical assets, as well as the cost of powering and cooling them, are skyrocketing. This is putting significant pressure on budgets. Cost reductions do exist in storage infrastructure. We tell customers there is a net $1 million opex reduction potential to be realised over three years for every 12 terabytes of installed and useable disk capacity,” says Sims.

He points to an international HDC case study of Fidelity Investment, which realised a saving of $27 million over a four-year period by using HDC methodologies and intellectual property.

For another customer, a local enterprise, Sims says HDS was able to leverage four areas of “hard savings” when calculating the financial benefit of investing in a Hitachi system.

“Based on an investment of $293,000, we identified over $600,000 worth of hard savings in the area of reduced labour costs, purchasing avoidance, power and cooling savings and reduced maintenance fees. This provided a payback period of less than 18 months and an ROI of 117 percent,” he says.

Learning in the fast lane

Stephen Whiteside, director IT Services for the University of Auckland (UoA), is interested in savings related to storage and power and cooling costs, along with other IT maintenance savings. The UoA — the number one organisation in the MIS100 for the past six years — supports more hardware devices than any other organisation in this country, delivering IT-driven services to 30,000 equivalent full-time students and more than 4500 staff.

Whiteside says the UoA is moving from being a government-funded teaching organisation, to a learning and research provider that would like to attract more postgraduate students. Only around a third of the university’s total funding is provided by government and under-graduate students.

He says the current recession has led to less direct investment in the UoA by government and there has been no firm commitment to funding for research-related broadband infrastructure.

“Teaching and learning doesn’t pay us a lot and we are facing more difficulty in growing our external research income. Our income sources are also a lot smaller than those of our international competitors,” says Whiteside.

Like Mainfreight, the UoA favours colleague and IT vendor collaboration. Whiteside says data, information and knowledge are shared between international research-based universities, and data from “super-computers” is combined to bolster research knowledge and outcomes. He identifies super-efficient IT tools as IP videoconferencing systems and social networking and e-learning tools found on the web. Cloud computing and an increased use of Software as a Service tools have also been beneficial.

“How long before we are using an Amazon-type model for our datacentres? We have 200,000 logins per week on our Learning Management System and we have even been using the [online simulated environment] Second Life, to allow architecture and other students to build things [virtually].”

He says the recession has caused the UoA to review IT governance and reconsider IT roles and responsibilities. There has been renewed focus on IT service expectations and service agreements.

“A recession puts pressure on efficiency and effectiveness. It is our responsibility to manage relationships internally and to achieve agreements,” says Whiteside. With additional reporting from Divina Paredes

Hitachi Data Systems and Gentrack kindly sponsored the MIS100 2009 Event in Auckland. Please go to cio.co.nz for a copy of the MIS100 2009 report and the speakers' presentations at the MIS100 Event.

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