Downturn Déjà vu

I came across some tidbits from a study by former Gartner analyst Theresa Lanowitz that talks about the need for us all to remember the lessons learned during the last economic downturn: Resist the urge to slash IT.

I couldn't find any more than some dribs and drabs - and I haven't yet signed up for a free membership to read the entire study - but there were some interesting tidbits that are as full of wisdom today as they were in the last financial meltdown in 2000:

• Outsourcing to cut cost: Outsourcing was viewed as a panacea, however, many IT organizations spent more money because of poorly planned and implemented outsourcing schemes.
  
  
• Lack of innovation on the vendor side: This led to lack of innovation and education on the IT side. IT organizations were in turmoil because spending was dramatically reduced, and software vendors stalled new products and focused only on necessary items. IT did not have the leverage with either the line of business or vendors to demand new technology to support very real issues.
  
  
• Poor quality: The reduction of IT spending saw the demise or vast reductions in QA organizations. Many IT managers and even consulting organizations viewed “quality” as extraneous and something anyone could do.
  
  
• CFOs made business and technology decisions: Technology decisions were simply made on the basis of initial purchase prices with no regard to how the decision would ultimately affect the business. The CFO-led purchasing power elevated a person in the organization who had no technology awareness to a level of ultimate and final decision maker. The impact from CFO-led purchasing decisions was far reaching and long lasting.

Well, I'm old enough to vividly remember the last downturn, and I'd be a crack-smoking idiot if I thought that IT should be immune from cuts - BUT you don't need to just throw out the people that are making a huge difference in your IT organization, just because their salary level is higher than the repetitive-stress injury-just-got-out-of-college-and-was-hired-because-my-dad-works-here junior staffer.

The phrase "software runs the business" has never been more true. The "downturn" will turn into an "upturn" at some point in time - so don't be so short-sighted that you lose the people that will be instrumental in your future growth, and who are likely the ones that will help sustain your operations during the downturn as well.

Lanowitz is a way better writer than I am - and she put it very succinctly:

All too often in a time of economic downturn, people are seen as disposable, and most often, the more expensive a head is, the easier the justification for reduction. For businesses to remain competitive and grow during this economic downturn, retain key people. DO NOT just keep the less expensive heads… The IT organization of the future is less about those who can perform repetitive, manual tasks than it is about those who have skills to manage projects, act as a conduit of information, and view IT as a strategic enabler to the line of business.

Amen to that, sister!

Don't Throw The Baby Out

Most executives in most companies are really freaked out right now. It sucks to be the leader of a company right now - and it sucks to be the head of departments - because the buck's gotta' stop somewhere. In this case, crap flow UP hill.

The economy is in full meltdown mode, and lots of people are losing lots of sleep - and are self-medicating with booze (at least someone is making money in the downturn!).

It's easy to get caught up in the general panic and malaise - and therefore lots of people are reacting to what others are reacting to - not the realities of the day. The herd mentality is ruling the average business person rather than the facts - and it's kind of pissing me off.

I'm all for cutting costs and watching expenses. I'm all for trimming the "dead wood" of non-producers out of the workforce. I'm all for delaying "luxury" purchases until the smoke clears out a bit. I'm all about watching travel and entertainment expenses and cutting marketing programs that don't produce tangible results.

However, I'm totally against just cutting for cutting sake. Some companies are just going absolutely nuts - cutting 20% to 50% of their staff; stopping all marketing; etc. They are "cutting to the bone" in order to go into "survival mode."

In fact, Sequoia capital came out early and hard - as documented in the Om Malik blog basically telling all of their portfolio companies that "Cutting deeper is the formula to survive, and this is an era of survival of the quickest."

As a result, a bunch of their companies shed anywhere from 30% to 50% of their staff - even though they were (are) cash-rich. Maybe in those cases it was a case of hiring some "fluff" people or just the giddy feeling for an upstart entrepreneur that you don't have to do everything absolutely by yourself anymore... I don't know.

In any case - you have to carefully weight the "costs" associated with cuts in terms of your current sales, current customers - as well as what it will do to your chances of thriving when (not if!) the economy returns to its "full glory."

In the spirit of not throwing the baby out with the bath water - here's some questions for you to ponder if you're thinking about massive cuts in your company:

• If you just up and layoff a bunch of people - what will that signal to your current customers?
• What about people that are evaluating your product for possible purchase - how will they view massive cuts?
• How long will it take you to replace that person/function when things get going again?
• Can you really afford to stop all your marketing? What will happen in 6 months when the current flow of leads dries up?
• How will you continue to make enough money to keep even your "reduced" company going?
• How will you mitigate the inevitable drop in productivity and morale with the people you don't cut?

Sure - there's the herd mentality and things are clenched up at the moment. And, it very well be that there are cuts you could make (and SHOULD make). Just be sure that you're not throwing out the future of your company - and something you've worked very hard at (and invested your retirement in) for a number of years - over a short term panic in the marketplace.

Hopefully, the "sliver lining" in this economic mess is that we'll have stronger, smarter, healthier companies come out as a result of these difficult decisions and (sometimes brutal) cost cutting.