It Economic Slowdown Survey C4144

IT priorities for battlingthe economic slowdown:

UK CEO Survey | 2008

Contents

1 Executive Summary 3

2 CIO Considerations for Taking First Steps 11Enhancing Customer Experience: enabled through technology,led by the business 11IT Effectiveness: Improving performance and creating savings 14

3 About the survey 18

4 CEO Survey Results 19Where do the challenges lie? 19

Business prospects for 2008 19Strategic barriers to growth 20Internal barriers to growth 21

IT Priorities to meet the challenges 22The importance of IT 22Top business outcomes driving IT strategy in 2008 compared tothe last two years 23Greatest impact of IT 25

Budget changes expected to meet the targets 27Anticipated changes to headcount, operating costs,and capital expenditures 27Anticipated budget changes in 2008 28Strategies for reducing or containing IT cost 30Extent to which IT cost reduction puts business imperatives at risk 32

About BearingPoint 33

About HP 33

1. Executive SummaryRecession fears have grown over the last three quarters as

the implications of the US credit crunch have deepened and

spread abroad to become a multi-region contagion. With

costs for commodities, especially energy, soaring as well,

businesses will have to adapt quickly to mounting economic

pressures in order to maintain growth and profitability.

BearingPoint and HP initiated a structured review, based on a survey conducted by theEconomist Intelligence Unit, of how the current economic landscape has affected thebusiness outlook for UK CEOs and how, in turn, this will impact their expectations of theIT function. The Economist Intelligence Unit was commissioned to carry out this surveyby obtaining answers to 15 key questions. This whitepaper documents the survey resultsstemming from this turmoil and the impact on the CEOs’ attitudes. Further, the surveyexamined how these changing CEO attitudes impact the role of the CIO and the ITorganisation. Specifically, the survey was designed to reveal answers to the followingkey questions:

• How will CEO priorities, in the light of the credit crunch, translate into businessimplications for CIOs?

• How can CIOs best position the IT function for these predicted changes?

• In what ways are CEOs expecting CIOs to use information technology toimprove the situation?

One of the findings of the CEO survey which bucked reported trends was confidence.Despite media consistently claiming that the economy looks certain to slow to dangerouslevels, Britain's CEOs remain more optimistic. Whilst there was concern, the majority feltthat with good planning and sensible actions the next 12 months were navigable. In factmany felt that in areas such as customer focus and cost reduction, the financial climatehad simply forced them to take actions which were probably overdue.

In the simplest terms, CEOs feel that their business could emerge from the presentslowdown as leaner and more focused organisations better able to grasp upturnopportunities than might have been the case otherwise – although all agreed thatdoing nothing at this stage would have dire repercussions.

CEOs noted the need to prioritise investment in enhancing the customer experience,displaying their appreciation of the speed with which today’s customers are able toinfluence their business’ fortunes. Customer to customer communication on the internet,and in particular via social networking sites, means that positive feedback directly drivesnew customer acquisition. Conversely, poor feedback can quickly translate into a sharpdrop in sales and subsequent fall in share price.

UK CEO Survey 2008 | 3

IT priorities for battling the economic slowdown:

UK CEO Survey 2008

4 | UK CEO Survey 2008

CEOs rightly recognise that the need to turn customers into ‘advocates’ of their productsand services is all the more critical during a period of economic slowdown. During theseperiods, opportunities for driving customer acquisition, retention and growth are critical.This is made all the more critical with the proliferation of channels available to supportcustomer interaction and the enhanced information flow this engenders. Business andIT must collaborate to deliver a differentiated customer experience supported by theinsights and technologies, which enable seamless interaction with an organisation,producing a relevant and emotional connection. Rather than embarking on large-scaleimplementations of new solutions, focusing on the delivery of tactical solutions thatsupport an overall customer strategy will allow the CIO to demonstrate a clearer returnon investment (ROI).

An inevitable reaction to market realities includes reducing operational costs. As theCEO and the senior leadership team review and formulate plans to reduce cost, technologycosts will be a leading component to manage through most aspects of the business.The CIO will need to work closely with business unit leaders to implement businessprocess efficiencies and bring new and improved products to market quickly. Internally,the CIO must focus on IT process efficiencies, cost transparency and cost take-out toachieve cost reduction goals while maintaining business alignment through managedIT demand. More than ever before the relationship between CEO and CIO will be criticalas CEOs hold IT responsible for delivering key capabilities and enhancements tothe business.

The core results of this survey indicate CEOs:

• Have expressed surprising confidence for 2008 outcomes but are cognisant of theeconomic situation driving their organisations to re-plan 2008.

• Understand this challenging environment has provided context and opportunity toexecute against customer experience and cost focus objectives.

• Depend on CIOs to support achievement of their goals and deliver the firms’success because they recognise technology’s importance in supporting every part oftheir operations.

The major implications for CIOs and their respective IT organisations:

• CIOs will be held accountable to deliver more advanced customer focused capabilitiesand productivity enhancements.

• CIOs will be held accountable for reducing firm-wide operations spend. This includescontrolling cost within the IT organisation as well as managing IT demand across thebusiness and enhancing business process optimisation.

• CIOs should expect heightened scrutiny of the value that IT provides to the businessgiven the overall contraction of firm-wide spend.


UK CEO Survey 2008



UK CEO Survey 2008

Key CEO Survey Findings

Our initial hypothesis forecast that the dramatic changes in the economic climate wouldforce firms to review and adjust plans, investments, and activities for 2008. The followingresults provide a high level interpretation of the survey’s key findings.

Surprising optimism by our surveyed CEOs…Almost half of our surveyed CEOs view prospects for business in 2008as good or very good.

1.1 How does your organisation view the prospects for business in 2008within the UK, Europe and across global marketplaces?

Even with the economic news to date, our UK CEOs are optimistic they can chart acourse for their organisation’s success. While course corrections were necessary in termsof adjusted focus, resources, and specific actions, they communicated confidence inmoving forward and coming out of this period with stronger, more capable organisations.For firms with EMEA and/or global footprints, the optimism was even greater.

Very good Good Indifferent Poor Very poor Not applicable

0 20 40 60 80 100%

UK

Europe

Globally


However, no one foresaw the “credit crunch” coming…CEOs name macroeconomic pressures as the greatest strategic barrier to growth in 2008.

1.2 Which of the following represent the greatest strategic barriers togrowth in 2008 for your business within the UK?

By far the greatest barrier to growth in 2008 is seen by CEOs as being macroeconomicpressures. Yet, just two years ago macroeconomic risk was ranked by CEOs as only the 5thmost worrying risk for business (Source: Corporate Priorities for 2006 and Beyond, theEconomist Intelligence Unit). In addition to the “credit crunch”, rising energy costs andthe decline in consumer spending contribute to the negative macroeconomic pressure.

The rapidity with which the economic climate has changed clearly highlights the need forbusiness flexibility in order to deal with an unpredictable marketplace.

CEOs will demand that CIOs enable the rapid deployment of business strategies re-drawnto combat a challenging environment. In addition, CIOs will need to place ever greaterefficiency targets on their own IT organisation in response to tightening budgetconstraints.

0 10 20 30 40 50

Macroeconomic pressures

Rising costs of energy and raw materials

Decline in consumer spending power

Lack of available local talent

Tax and regulatory pressures

Increased competition from international rivals

Downward pressure on prices

Increased competition from domestic rivals

High labour costs in local market

Market saturation

Lack of capital

Other

%


UK CEO Survey 2008


But the reactions are clear…In this economic climate, survival has moved the CEO to emphasise reconnecting withtheir customers.

1.3 What are the top business outcomes that will drive your company’s IT strategyin 2008? Select up to three.

55% of CEOs placed improved customer experience as the top priority business outcomefor IT strategy in 2008.

As noted in fig. 1.2, 30% of surveyed CEOs identified the decline of consumer spendingpower as an additional barrier to growth in 2008. In other results, although spendingreductions are anticipated across the business, CEOs do expect to address thesechallenges, with marginal increases in 2008 budgets for strategically important areas.51% of CEOs forecast an increase in customer service budgets, 50% forecast an increasein marketing and sales budgets and 53% forecast a rise in IT budgets (see fig. 4.9).

While CEOs are expected to direct their businesses to become more efficient and tocontract their overall discretionary investment, it is clear from the survey results thatCEOs will renew focus on, and in some specific areas increase budgets for, improvingtheir business’s interaction with the customer.

In the current, difficult climate the CIO’s contribution to a green agenda will virtually beplaced on hold, while CEO attention focuses on customers and costs.

0 10 20 30 40 50 60%

Improving the customer experience

Cutting operations costs

Enabling new product/service development

Improving quality of management information

Increasing business process quality

Increasing speed to market

Business resilience

Meeting regulatory compliance

Reducing environmental impact


UK CEO Survey 2008


CEOs also see high operational and workforce costs as being thegreatest internal barriers to growth in 2008.

1.4 Which of following represent the greatest internal/operational barriers to growthin 2008 for your business within the UK? Select up to three.

Surveyed CEOs identified high operational costs (50%) and high workforce costs (39%)as the two leading internal barriers to growth in 2008.

As a response, 47% of CEOs believe that IT will play a critical role in overcoming thesehigh costs (see fig. 4.7). CIOs will be asked to deliver efficiencies in their ongoing costsas well as assisting the broader organisation in re-focusing the (likely reduced)investment budget.

More than one third of the CEOs expect firm-wide reductions in permanent staffheadcount and almost half expect reductions on temporary and/or consultant staffheadcount (see fig. 4.8). IT will need to focus on enabling increased staff productivityas part of the solution delivered to the business units.

High operational costs

High workforce costs

Internal complexity of business

Inability to adapt quickly to business change

Supply chain issues

Inability to integrate sales channels

High workforce turnover

Poor risk / crisis management

Poor quality of customer service

Other, please specify

0 10 20 30 40 50%


UK CEO Survey 2008


As a result, the CIO and the IT organisation are crucial assets forthe CEO to enable the business to thrive in this challenging neweconomic climate.

1.5 How important do you think IT will be in helping the organisation overcome thesechallenges you face?

An overwhelming 87% of CEOs agreed that IT will be important or very important inhelping the organisation overcome all of these challenges.

In other results, less than 1 in 5 CEOs will reduce IT headcount. Most CEOs will ensureadequate IT resources are available to address business challenges. Nonetheless, it isclear that CEOs will expect the IT organisation to contribute to overall spendingreduction initiatives.

Whether it is enhancing the customer experience, increasing the focus on sales andmarketing, or delivering customer support efficiently, the CEO clearly sees the CIO andthe IT organisation as critical to the customer value chain.

Together, these expectations read as a “coming of age” statement for the CIO andthe IT organisation. CEOs broadly expect the CIO to “step up” to the challenges of thiseconomic climate, closely engage with business unit leaders, and deliver capabilitycrucial for their organisation’s survival during this period.

0 10 20 30 40 50 60%

Very important

Important

Not very important


UK CEO Survey 2008


Priorities for achieving CIO goals

Engage the Business Partners

In their recent book, “The New CIO Leader”, Marianne Broadbent, Gartner Fellow, andEllen S. Kitzis, Group VP of Gartner’s Executive Programs state that “60% of your newareas of focus are on the business side, not in your IS group.” Bearing this in mind,successful CIOs will proactively reach out to their business partners and support theCEO’s firm-wide goals along these specific objectives:

• Connect to your Customer – Work closely with your business unit leaders to partnerin renewing customer focus and investment – first with the aim of wringing valuefrom existing CRM systems and secondly to apply customer experience managementsolutions that deepen the salesforce’s understanding of customer preferences,needs and overall relationship with the organisation.

• Consolidate and Optimise – Most organisations have not reached an optimum levelof consolidation nor do they use strong standards consistently in practice.

• Innovate and Collaborate – Do not leave your firm’s future to chance. Organiseyour innovation resources, employees, business partners, and customers to drivetargeted innovation.

Transform Your IT Organisation

Successful CIOs will drive their IT organisation to transform its capabilities and coststructures. Mark Hurd, CEO of HP, was recently interviewed by Forrester’s Laurie Orlov,who summarised his expectations of the CIO and the IT Organisation: “He believes thatHP wants much of the same from its own IT that its customers want from their IT, whichincludes driving maintenance as a percentage of IT spend from 70% to 20%, halving ITcost, providing instant access to information across the corporation, lowering risk, andproducing a measurable suite of products along the way.” Focusing on the followingobjectives will begin this transformation:

• IT Process Optimisation – Optimise your IT organisation to achieve process efficienciesthrough structured process frameworks (i.e., IT Infrastructure Library® (ITIL®)) andprocess optimisation methodologies (i.e., Lean for Service).

• IT Cost Take-Out – Use structured methodologies to reduce/remove ongoing costsand manage your suppliers more closely to free up investment funds.

• Programme Management – This is not just about reporting. This discipline will bethe primary capability the CIO leverages to re-plan and re-mobilise in order to meet thefirm’s challenges.

• Information Management – Monitor levels of data quality, the latency of informationand the dissemination of information to the right place at the right time at the rightprice. Integrate customer data and maximise CRM investments.

• IT Governance – Get this aspect right and the enormity of the other challenges beginsto become manageable.


UK CEO Survey 2008


2. CIO Considerations forTaking First Steps

Enhancing Customer Experience:enabled through technology, led by the business

Against a back-drop of ever increasing customer to customer communication, businessesare becoming ever-more aware that both good and bad customer experiences can betransmitted swiftly to an audience of millions.

Customer adoption of Web 2.0 technologies has amplified the volume and impact ofeach individual opinion while shrinking the time it takes for that opinion to influence thepurchasing decisions of many other customers. Consequently, providing experiences thatare distinctive and valued by customers is the best source of sustainable competitivedifferentiation in customer management today.

Until recently, the customer experience was defined “inside out” based on productfeatures and perceived benefits, now the balance has swung to “outside in” thinking withmuch greater emphasis placed on the customers’ emotional connection with a combinedproduct and service offering. Creating this emotional tie is key to making your customersproactive advocates.

Success in achieving such a position depends on deep customer insight and segmentationinformed by customer intelligence derived from the information within the organisationand from third party sources, crucially supplemented by primary research and trade-offanalysis. Building on this customer intelligence foundation and by consolidating competitorinsight, the next step is to architect an integrated proposition across marketing sales andservice that embeds distinctive and seamless customer experience at every touch-pointof every channel which establishes and sustains emotional engagement.

Only at this point is it appropriate to consider how to bring the experience to life in termsof people, process, data and technology changes across the full customer lifecycle.

Technology therefore supports the strategy and architecture phase of customer experiencedesign by providing the required source of data based customer intelligence throughthe use of appropriate information management and analytic tools, as well as theimplementation phase, by enabling customer experience engineered processes andempowering customer experience savvy employees.

Too often in the history of CRM, technology has been deployed without sufficientupfront business engagement and direction.


UK CEO Survey 2008


2.1 Please rate your company’s performance relative to each of the followingCRM categories (1: poor / 5: outstanding)Source: Forrester

The chart (above) from industry analyst, Forrester’s CRM Best Practices Adoption report,2008, illustrates significant performance shortfalls in the implementation of key CRMfunctions.

Fundamentally, the core technology investments underlying the CRM solutions aresound; however the full ROI has not yet been achieved.

CIOs need to invest more time with business unit leaders to identify opportunities wherethe appropriate use of technology can help to enhance and simplify business processesto meet customer expectations. Working closely with the business to articulate thetechnological requirements clearly within the overall customer strategy that is drivinga differentiated customer experience is critical so that the CIO is able to:

• Deliver rapid value to the business by identifying and delivering tactical improvements,underpinned by sound business cases

• Structure these tactical investments are structured to integrate with existing CRMsolutions supporting longer term enhancement of CRM functionality and insightmanagement

Successful customer experience starts with customer insight and must be drivenstrongly and sponsored by the business across marketing, sales and service. More thanever the CIO must work with marketing sales and service colleagues, firstly to illustratewhat is possible, but then to insist and ensure that the business takes the lead and thattechnology decisions are deferred until the business is in a position to make informed,value based choices through a clear customer strategy that has customer experienceat its heart.

Marketing* (n=1,482)

Customer analytics‡

(n=622)Customer service†

(n=862)Indirect sales†

(n=845) Customer data

management‡ (n=633) eCommerce*

(n=293)Customer strategy§

(n=635)Technology

Infrastructure§ (n=1,035) Field service‡

(n=293)People management§

(n=1,213)Direct Sales*

(n=720)

37% 28% 27% 8%

36% 27% 31% 6%

35% 22% 26% 17%

33% 27% 21% 19%

31% 30% 34% 4%

30% 23% 27% 20%

25% 30% 40% 5%

23% 25% 45% 7%

22% 13% 13% 52%

20% 32% 44% 4%

17% 29% 35% 18%

Poor/below average Average Very good/outstanding Don’t know

*Base: 73 business and IT decision-makers†Base: 58 business and IT decision-makers‡ Base: 55 business and IT decision-makers§ Base: 74 business and IT decision-makers(percentages may not total 100 because of rounding)


UK CEO Survey 2008


Using Real Time Marketing to drive revenue and enhancecustomer experience

There is a growing trend to use Real Time Marketing supported by “decisioning” enginesolutions to enhance the customer experience and drive revenue through up sell andcross sell opportunities.

These technologies help empower customer-facing employees by creating dynamicmessaging that can guide customer interactions by actively suggesting which offer orcombination of offers a customer is likely to want.

Interaction management of this nature, mines thousands of considerations, messagesand potential interactions, however, extensive cultural analysis of how employees willreact to such a system cannot be overstated. Successful deployment depends on ensuringemployees are comfortable interacting with the system and trained to incorporate theinformation effectively in their dialogue with the customer.

With so many sources feeding information into a decisioning platform, establishinga content profile for each customer is essential. This profile will help determine theimportance and impact of various influences on the customer relationship, fromprevious purchases, attitudes, behaviours and interactions to external influences suchas government regulations and industry shifts. This profile must also support dynamiccontent taking into account major changes in a customer’s profile, such as moving toa new city or taking a new job. This is key so that a response to current needs anddesires can be accurately predicted.

To work effectively, the decisioning engine needs information feeds from all sales,marketing and service sources, supplemented by other sources such as acquired insightsand primary research. Business rules that effectively gather, incorporate and arbitrateattributes from these various systems need to be set in place. Most importantly theserules will also recognise that in order to become truly customer centric, customers mustbe free to develop, discover and drive their own customer interactions and journey.This journey is fluid and not tied to a particular product or business offering.

During times of economic slowdown, opportunities for driving customer acquisition,retention and growth are critical. Business and IT must collaborate to deliver adifferentiated customer experience supported by the insights and technologies whichenable seamless interaction with an organisation combined with a relevant andemotional connection.


UK CEO Survey 2008


IT Effectiveness:Improving performance and creating savings

Today, IT is the primary delivery vehicle for products and services across a wide numberof industries. We have moved from paper based enablement to electronic enablement.However, CIOs face a huge challenge in ensuring the business maintains high servicelevels and supports business growth while ensuring the underlying cost structureimproves rather than erodes profitability.

Improved IT efficiency tackles both sides of this equation and depends on transformingthe underlying cost structure in a way that delivers long term, sustainable improvements.This simply cannot be achieved by a series of one-off cost reduction initiatives. Costreductions must also be managed in support of maintaining alignment between businessand IT plans.

These efforts will force CIOs to transform technology cost structures as well as providefundamental cost transparency to the business. IT cost take-out and IT cost transparencyenable the CIO and the IT organisation to target inefficiencies and sustain those costefficiencies through ongoing positive business behaviour. Positive behaviour is reinforcedby clear understanding of value aligned to cost.

The first critical feature of improving IT effectiveness is IT cost take-out. Successful ITorganisations will use structured cost take-out methodologies to identify “business asusual” costs and identify efficiency opportunities to achieve a smaller, sustainablecost base while maintaining a superior level of service to the business. Theseopportunities include:

• IT Process improvements (Both the ITIL process framework and the Lean 6 Sigma forService process optimisation methodology can be employed to achieve relatedprocess efficiencies.)

• Outsourcing

• Off-shoring

• Consolidation


UK CEO Survey 2008


Resulting from this analysis will be prioritised business cases and roadmaps describingthe project sequencing and investment flows.

2.2 Key steps to IT cost take-out

Business Case Evaluation

IT Infrastructure & Processes

Cost Take-Out Business Case

Implementation Roadmap

Physical Infrastructure

Data Center

Server and Storage

Applications

The Business Case evaluates the IT environment, and shows cost improvement steps in a modular and measurable way.

The Business Case results in an implementation roadmap.

Services & Processes

Service Desk

Processes

information Platform

Assumptions andRisk Analysis

ExecutiveSummary

Business Driverand FrameworkIdentification

Detailed ModularAnalysis

Benefit andPayoff Analysis

Service DeskAssessmentStrategy

Data Center

Server andStorage

Processes

InformationPlatform

01/y1

AssessmentStrategy

AM Planning

Standardization Planning

Infrastructure Server Conso.

Legacy System Consolidation

Germany File Server Storage

Global Problem Mgmt

Global Monitoring

Global Change Mgmt

Global Asset Management

Global Release Mgmt

GER/FR/US Storage Conso. RoW Storage Conso.

AM Install

EMEA Planning

EMEA Install

AM Production Migration

Regional Problem Mgmt

Regional Service Monitoring

Regional Change Mgmt

Regional Asset Management

Regional Release Mgmt

EMEA Production Migration

Standardization Implementation

US/FR/GER Apps. Serv. Conso. RoW Apps. Serv. Conso.

Service DeskFoundation

Service DeskImprovement

Design & PilotImplementation

Portal GlobalDeployment

PortalGlobalExtension

01/y1 01/y2 01/y2 01/y3 01/y3 01/y4

Analysis & Modelling

Low hanging fruitindentification

StrategyAlignment

CostAlignment

EfficiencyAlignment


UK CEO Survey 2008


The second critical feature in IT effectiveness is the implementation of cost transparency.The first step to cost transparency is capturing an accurate picture of existing costs basedupon usage of IT services, then relating those usage costs to applications that thebusiness uses to perform a business process or function. This involves taking an end toend perspective of costs and understanding the relationship between all the underlying ITservices required to deliver a specific business outcome. For example, within a bank a CIOwould need to piece together the cost of the people and the tools that they use (phone,

desktop etc.), hardware, software, network and facilities that relate to anapplication such as ‘mortgage servicing’. The CIO then needs to

understand the impact that application has on thespecific business area and how this affects the

overall performance of the bank. By providing ITcost transparency a CIO is able to avoid beingjust the “IT order taker” and is betterequipped to educate business leadersacross the organisation about the costimplications of their own decisions.

As most IT organisations serve multiplebusiness units, it is important that

communication must include the aggregateddemand and its effect on aggregated resources

in order to be effective. Aggregated demand ismost valuable when demand from projects (strategic

demand) and service requests (operational demand) can bemapped to the aggregated resources. This enables a complete picture

of demand and resources to be communicated. With this common understanding inplace, it becomes much easier for the CIO to manage demand for IT services because thebusiness leaders understand specifically how their decisions impact their costs for ITservices and how multiple demands can come into conflict necessitating executivedecisions. Most firms without tightly linked demand management generate falseeconomies for the IT services. The coupling of demand management with costing securesthe ability to predict future costs for IT services and the ability to save money byencouraging more efficient use of IT services.

Effectively managing demand has a high impact on overall costs. For example, if duringpeak times the mainframe utilisation is 90%, decisions can be made to influence behaviourso that programmes run during non peak times and also so that non essential activities,such as testing, do not occur during peak times. Managing demand this way canproduce significant cost avoidance. Facilitating the conversation with the business togenerate demand forecasts and assimilating those forecasts with consumption modelsenables the assembly of realistic business/IT plans. These plans will begin to ensurecapacity is in place when needed and will help to combat the need for CIOs to over spendon excess capacity in high cost areas such as networks and mainframes simply in orderto cope with highly irregular spikes in system usage.

IT cost transparency provides information to business so that they can make decisions.For example, if a business uses three different systems for loan origination because ithas acquired other companies over the years, the total and per transaction costs can beidentified and the business along with IT can rationalise applications in order to achievesignificant cost reductions. This cost transparency also enables the IT organisation toidentify efficiency opportunities (automation, reduction of root cause analysis time,reduction of Mean Time to Recovery, etc.), generate targeted, credible business cases,and prioritise the resulting opportunities for funding.

Technology Service CatalogueService Levels, Service Pricing

Key CostManagementComponents

Technology Chargeback /Business Line Invoicing for

Technology Services

Driver-Based Planning and Forecasting

Technology Costingand Resource

Consumption Metrics


UK CEO Survey 2008

2.3 Sustaining IT cost transparency


Importantly, IT cost transparency allows CIOs to apply industry or internal benchmarksto the costs of discrete components involved in delivering IT and highlight where costreduction efforts will deliver the greatest return. In turn this facilitates the prioritisationof plans to improve efficiencies for the future and free-up budget to re-invest in growth.In many instances, however, the answer to reducing an IT cost issue will not rely solelyon the IT function but on process and policy changes too. For example, how data isclassified has a direct impact on data storage costs. If a substantial amount of data isunnecessarily classified as tier one, organisations will bear the burden of payingpremium prices for this. Changing policies and procedures to classify data appropriatelycould significantly reduce costs permanently.

Rapidly measuring IT costs puts a strong foundation in place. Continuous monitoringof how changes impact the business will also make it possible over time to forecast thebottom line implications of scaling capacity up and down to match changing businessvolumes. More importantly it will provide information to business leaders that allowsthem to understand the true IT service costs of decisions that they are making.

As the environment matures, the IT organisation can focus on evolving from traditionalservice level definitions to service levels which measure actual customer experience inbusiness impact terms. This will provide feedback to further refine investment and betteralign IT activities to creating business value.

Another area in which costs can be tackled swiftly is the approach to purchasing. Ensuringa contract supports a best in class unit rate may not always be enough. Once again thefocus on the business outcome provides the context for potentially moving to a managedservice contract. This is particularly notable when examining the cost of labour. Globalsourcing in which a captive offshore operation or fully outsourced operation is part of thedelivery model is a key cost lever for many of today’s businesses. However, optimising theuse of this labour arbitrage may mean moving away from using third party vendors ascontingent labour because this can lead to a steady climb in the cost of paying highhourly rates. Moving to a managed service could bring this down considerably.

Finally, for methods like IT cost transparency to have sustained impact, governancemodels must be evolved. The CIO and the business unit leaders must have ongoing formalinteraction which will enable both the management of cost in the short term as well asthe management of how new technologies, services changes, and other cost elementsare integrated into the service portfolio over time.


UK CEO Survey 2008


3. About the survey

IT priorities for battling economic slowdown: UK CEO survey is a jointBearingPoint/HP white paper, based on a survey conducted by the EconomistIntelligence Unit.

BearingPoint and HP crafted 15 questions designed to explore the major challenges,barriers, and priorities faced by CEOs in 2008 within the UK, Europe and globally.

The Economist Intelligence Unit used these questions to survey 74 CEOs of UK-basedcompanies during the first half of 2008. We would like to thank the respondents for theirtime and insight.

Respondents represent a wide range of industries, including financial services,entertainment, media and publishing, construction and real estate, manufacturing,transportation, travel and tourism and retail. All companies surveyed had revenues of atleast US$100m. Half of all firms had revenues of more than US$500m, with about one infour firms having revenues of at least US$1bn. The largest number of survey respondents(32%) was drawn from the financial services sector.

3.1 What is your primary industry?

Financial Services

Entertainment, media and publishing

Transportation, travel and tourism

Construction and real estate

Manufacturing

Retailing

Consumer goods

Telecommunications

Water / Energy Utility

Chemicals

IT and technology

Logistics and distribution

Oil and gas / natural resources

Automotive

No. of CEOs

0 5 10 15 20 25


UK CEO Survey 2008


4. CEO Survey Results

Where do the challenges lie?

Business prospects for 2008

Question:

4.1 How does your organisation view the prospects for business in 2008 within theUK, Europe and across global marketplaces?

Results:

Observations:

Surprisingly UK CEOs have a remarkably positive outlook for 2008 business prospectseven while they strive to negotiate these economic difficulties.

Despite the news of mounting concern over the economy, the majority of CEOs arepositive in their outlook for business across different regions. This indicates the CEOssurveyed still have confidence in their ability to manage through this period. However,amongst those CEOs who feared prospects would worsen confidence in the UK was lowerthan for Europe or other parts of the globe.

All companies – not just financial institutions – are now feeling the impact of the creditcrisis directly. One consequence of the credit squeeze is that borrowing is more expensive– particularly for homeowners. Inevitably such a scenario is likely to have an effect onconsumption. In turn, consumer behaviour could squeeze companies’ sales and profitmargins unless firms have a clear strategy for being able to counteract this squeeze.

UK

Europe

Globally

0 20 40 60 80 100%

Very good Good Indifferent Poor Very poor Not applicable


UK CEO Survey 2008


Strategic barriers to growth

Question:

4.2 Which of the following represent the greatest strategic barriers to growth in 2008for your business within the UK? Select up to three.

Results:

Observations:

Macroeconomic pressures are seen as the biggest obstacles to growth for both smalland large firms.

Macroeconomic pressures were seen as the greatest strategic barriers to growth in2008 for businesses within the UK by 43% of respondents. Macroeconomic factors includegrowing economic uncertainty, with banks taking fewer risks, at the same time the costof wholesale borrowing on money markets remains high along with rising oil prices andcrop prices. The rising cost of energy and raw materials is the second largest barrier.These two points contribute to the third highest barrier to growth, which was the declinein consumer spending power. Consumers are now reprioritising spending plans in light ofincreasing mortgage repayments, rising fuel costs and higher food prices.

Strongly linked to this are local fears of rising levels of consumer debt, with 30% of CEOssurveyed identifying a decline in consumer spending power as one of their top-threeconcerns. Heavy discounting has failed to prevent a slump in sales on the high street, andthere is a real fear that the gloom evident in the retail sector could spread to other areas.The same number of respondents (30%) believes that the rising cost of energy and rawmaterials is also likely to take its toll on businesses and their earnings, forcing companiesto increase prices.

Macroeconomic pressures

Rising costs of energy and raw materials

Decline in consumer spending power

Lack of available local talent

Tax and regulatory pressures

Increased competition from international rivals

Downward pressure on prices

Increased competition from domestic rivals

High labour costs in local market

Market saturation

Lack of Capital


0 10 20 30 40 50%


UK CEO Survey 2008


An example of how these barriers to growth are starting to impact the UK is in theservices sector. The slowdown in financial services has been well publicised and the UKis also likely to see slowdown in the broader services sector. The Confederation of BritishIndustry (http://www.cbi.org.uk) reported that ‘levels of business volumes and valuesremained weak for the sector as a whole, and neither consumer nor business servicesfirms are positive about business expansion over the coming year. They have also becomemore concerned about their ability to raise external finance and the cost of doing so.’Fears of a job squeeze are also reflected in the survey: 28% of CEOs believe that the lackof available local talent will be a major factor hampering future growth. Indeed, two ofthe major problems that UK businesses will contend with in 2008 are the shortage andcost of talent. This is especially true for those companies looking to bolster talent in theIT department. The number of graduates in the UK with IT-related degrees has declinedsteadily over recent years, while demand for IT skills has increased.

Internal barriers to growth

Question:

4.3 Which of the following represent the greatest internal / operational barriers togrowth in 2008 for your business within the UK? Select up to three.

Results:

Observations:

High operational related issues such as integration and workforce costs continue to betop concerns.

Reducing day-to-day operational costs (50%) and optimally managing workforce costs(39%) continue to be the biggest areas of concern for our respondents. The challenge forCIOs is how to reduce operational costs in order to increase the budget for innovation andnew projects.

The internal complexity of business (36%) is also seen as a barrier to internal growth.In addition, the inability to adapt quickly to business change (27%) when processes andIT are not aligned will mean that many organisations will encounter a number of risks,such as problems in tracking project or delivery status, budget overruns due tounforeseen technical obstacles, or inability to adapt readily to evolving business needs.





Supply chain issues






0 10 20 30 40 50%


UK CEO Survey 2008


The survey also found supply chain issues (26%) continue to be a constraint. Much of thesuccess of a firm’s supply chain hinges on competent procurement practice. Procurementsolutions that help companies sustain margin improvements are built by implementingleading industry practices across the enterprise, including IT. BearingPoint’s experienceindicates savings in the range of 10% to 20% can be reasonably expected by mostorganisations.

The inability to integrate sales channels efficiently (19%) noted by CEOs is a clear call forimprovement with the help of IT. CIOs will need to adapt existing IT infrastructure inorder to support constant change in sales channels.

Respondents were also acutely aware of a high workforce turnover (16%). Reducingturnover and retention of key personnel remains a key area to ensure that organisationsare able to have individuals who are able to adapt to change continuously.

IT Priorities to meet the challenges

The importance of IT

Question:

4.4 How important do you think IT will be in helping the organisation overcome thesechallenges you face?

Results

Observations:

The role of IT continues to become increasingly important to business success. The surveyshows that the IT department will play a crucial role in helping companies meet futurebusiness challenges, with 87% saying that it will be either very important or important.The significance of IT is further recognised by the fact that it tops the list of areas wherebudgets are expected to increase moderately or significantly during 2008 (see 4.9),compared with 2007, with 53% of respondents choosing IT.

Out of this reasoning, HP undertook very recently a major IT transformation. Randy Mott,HP Executive Vice President and CIO, stated: “Our priorities were about getting betterinformation for the company–so that the business executives could make informeddecisions–and driving better efficiencies and applications for the business. It was abouttransforming IT to simplify the way we go to market, the way we support our customers,and the way we engage with and help our customers do their business.”

Whilst CEOs want to reduce operational cost, they see IT investment as essential inmeeting their business goals and therefore seek to optimise and more tightly managethe IT investment process rather than curtail it.

Very important Important Not very important

0 20 40 60 80 100%

36% 51% 12%


UK CEO Survey 2008


IT process efficiency and control is therefore an imperative for CIOs, who will need toadopt an effective portfolio management stance to meet these strategic challengesaccording to business priorities, and without being seen as adding cost unnecessarily.

Top business outcomes driving IT strategy in 2008compared to the last two years

Results:

4.5 What are the top business outcomes that have driven your company’s IT strategyover the last 2 years and what will they be in 2008? Select up to three.



Enabling new product / service development




Business resilience



2008 Past 2 years

0 10 20 30 40 50 60%


UK CEO Survey 2008

Observations:

Using IT to improve the customer experience is now the number-one priority on theagenda for CEOs, with 55% of respondents saying that this will be the top businessoutcome that is likely to drive their IT strategy in 2008. Retaining and increasing businessfrom existing customers can be linked to improving quality of management informationto answer such questions as:

• How many customer cross- and up-sell opportunities exist?

• Which are your most profitable customers and which are you losing money on?

• How can you improve customer acquisition and reduce cancellation rates?


Although many firms have initiated significant investments in CRM technology, mostfirms have yet to capture full value of those investments. Efforts to refocus and executestrategies targeted at specific objectives, workforce, efficiency, cost, etc. are neededor underway.

Next generation CRM implementations will focus on delivering customer intelligence (CI)capability. Newer CI technology allows decision makers to collect, analyse, and modelconsumer data, across all channels, offering them faster, more accurate, more predictive,insightful, and relevant customer information. Across all industries organisations need toexpand their definition of CI to include predictive analytics, decision modelling, real-timedecision engines, combination of structured and unstructured data, as well as supportfor decision making, collaboration, and workflow management in order to create an“on-demand” analysis tool that supports business processes. The need for this nextgeneration capability is further underscored by the fact that 19% of CEOs (see fig. 4.7)noted difficulties in their organisation’s ability to integrate sales channels.

Improvement of quality of management information (35%) is also seen as vitallyimportant as greater emphasis is made to increase business effectiveness by increasingthe value of high quality information assets. Information quality problems causebusiness processes to fail.

28% of the respondents also placed greater emphasis on increasing business processquality through use of IT. Business process automation technologies are being increasinglyused by many companies to improve the efficiency of both internal processes as well asdelivery of web based customer services.

Only 20% of the respondents also saw business resilience as an important factor affectingIT strategies. Nonetheless IT is vital in ensuring organisations’ business operations to beprepared, adaptable and responsive to internal or external dynamic changes –opportunities, demands, disruptions or threats.

CEOs may be underestimating the impact that IT could have on helping their organisationsmeet environmental targets. Just 14% of respondents said environmental factors aredriving their IT strategies. Despite this, ‘green IT strategies’ can deliver rapid results,including power saving and recycling and flexible working and teleconferencing to gridcomputing and virtualisation.


UK CEO Survey 2008



UK CEO Survey 2008

Greatest impact of IT

Question:

4.7 In which of the following will IT have the greatest impact in terms of its ability tohelp overcome these challenges? Select up to three.

Observations:

CEOs see IT as having most impact in the area of reducing operational costs. Given that53% of respondents also plan an increase in their IT budgets (see figure 4.9), and 87% saythat IT will be important or very important (see 4.4) in addressing the challenges facedby the business in 2008, there is a clear strategy of investing in IT in order to achievethese savings.

IT can reduce costs by enabling simpler business processes. Given that the businessprocesses are automated or facilitated by the underlying IT systems, simplification ofthese systems is critical. Successful simplification requires IT governance at an enterpriselevel and the role of the group CIO is pivotal in encouraging, enabling, and facilitatingthis process.

Today services companies as well as manufacturers rely on a sophisticated supply chain.Even the most significant services are themselves comprised of sub-services, infrastructure,and support, frequently provided by sub-contractors to the primary service provider.Awarding these sub-contracts can be a significant part of the business strategy formaintaining competitive advantage.

Being able to integrate IT systems effectively within a single organisation has provedto be a great challenge for many firms. Achieving integration across multiple tiers ofcompanies in a supply chain is a much bigger challenge. Many companies have high costsof doing business due to having to maintain separate and different technical infrastructuresfor communicating with each of their suppliers or customers. Interoperability should notbe taken for granted.



Supply chain issues








0 10 20 30 40 50%


The IT function has its own supply chain. This is particularly evident in functions thatconsider their outsourcing or offshoring partner as part of the supply chain deliveringIT change to the business. Solutions deployed by IT in helping the business meet itssupply chain challenges might also therefore be considered by IT itself when managingits suppliers. For example, it is not uncommon for IT services or contracts to be offeredthrough net-market style portals, or awarded through a Dutch auction.

Traditional bespoke software development results in IT systems that are usually fairlybrittle and require significant time to change. These changes often result in adding layersof complexity to the application that can erode its performance and maintainability overtime, increasing the cost and time to change still further.

Many companies are moving towards implementing technology solutions like serviceoriented architectures (SOA) to enable easier re-engineering and leveraging of businessservices and technology components. Implementation of business process managementsystems (BPMS) could also provide the next step in improved business agility by puttingcontrol of technology automation of business processes back in the hands of the business.


UK CEO Survey 2008



UK CEO Survey 2008

Observations:

Business as usual expenditure may become a higher priority than investment inchange programmes with 39% of respondents forecasting no change in capital expenditure.Increasing energy costs and wage costs may be a factor in slightly more respondentsreporting an increase in operating costs (40%) than anticipate a decrease (36%).

Slowing demand for non-essential programmes and services may account for 46% ofrespondents forecasting a reduction in temporary/contract staff. 31% of respondentswere planning an increase in permanent staff against only 23% planning an increasein temporary/contract staff.

The need for differentiation through innovation and high quality service experiencesin order to encourage customers to remain loyal as well as entice new consumersinto the fold is increasing as a consequence of the credit crunch impact on consumerspending. This challenge is exacerbated by the lack of local talent experienced byfirms when recruiting.

The rate of hiring overall is likely to be flat, or declining, when compared with 2007.Nearly two-thirds of companies surveyed (61%) expect no change in budgets allocated tohuman resources in 2008. About one-third (34%) of CEOs polled say that there will be asignificant or moderate reduction in headcount of permanent staff (with a further 35%expecting no change in the overall number); and nearly half (46%) saying that there willa significant or moderate reduction in numbers of temporary staff (with another 30%expecting no change).

Furthermore, high workforce costs were named as the second-biggest internal/operational barrier to growth for 2008 (39% of those surveyed chose this), and thereforebusinesses are likely to seek ways of reducing these costs.

Budget changes expected to meet the targets

Anticipated changes to headcount, operating costs,and capital expenditures

Question:

4.8 What changes to your company’s headcount, operating costs and capitalexpenditure do you anticipate having to make in 2008, compared with 2007?

Results:

Headcount (permanent staff)

Headcount (temporary / contract staff)

Operating costs

Capital expenditure

0 20 40 60 80 100%

SignificantReduction

ModerateReduction

NoChange

ModerateIncrease

SignificantIncrease

Don’t Know


Anticipated budget changes in 2008

Question:

4.9 How do you expect budgets to change in each of the following areas of yourbusiness during 2008, compared with 2007?

Results:

Observations:

Even with significant concern regarding high operational costs, CEOs will judiciouslyfocus cost management efforts through targeted budget adjustments to specificfunctional areas.

CEOs forecast budget increases for customer service (51%), as well as marketing and sales(50%). Improving customer experience is key in the face of macroeconomic pressure anddecline in consumer spending. From a CIO perspective, the creation of synergies betweenIT initiatives, customer services, and marketing teams (all of whom share in the biggestbudget increases) will continue to grow in importance. Clearly, better systems andimproved customer service are set to be strongly linked. This demonstrates businesseswill focus considerable energy on improving both customer satisfaction and loyalty.

Procurement & supply chain

Finance

Risk management

IT

Marketing / sales

Customer service

Research & development

Human resources

Operations & production

0 20 40 60 80 100%

IncreaseSignificantly

IncreaseModerately

NoChange

DeclineModerately

DeclineSignificantly

Don’t Know


UK CEO Survey 2008



UK CEO Survey 2008

Companies expect IT to have the biggest impact on reducing operational costs (47%)(see fig. 4.7). This might go some way towards explaining why, despite high operationalcosts being seen as the greatest internal/operational barrier to growth in 2008 by halfof the survey respondents, 41% of CEOs still expect to invest in overall operations andproduction in 2008. It may also explain why spending on IT doesn't show any imminentsigns of a decline. However, this may come later. Analysts often talk of a "lag" periodbetween a shift in economic conditions and the transfer of this impact into IT spending.

More than one in five CEOs responded that they expect HR budgets to decline, this isnotable given the turnover rates and the number of HR actions anticipated.

The area which respondents had least budget certainty was research and developmentwith 12% of respondents unsure of spend in this area. This may reflect ambiguity over thepriority for innovation versus the drive to reduce costs in the current economic landscape.


Strategies for reducing or containing IT cost

Question:

4.10 Which of the following strategies are you expecting to employ in order to reduceor contain IT costs over the next year? Select up to three.

Results:

Observations:

If costs are to be contained, how do CEOs expect their IT chiefs to do this? Nearlytwo-thirds of those surveyed (65%) expect CIOs to improve IT process efficiency, while42% will seek to cut IT demands from other departments within the organisation and27% will look at consolidation.

IT chiefs will come under increasing pressure to ensure optimal use of technologythroughout the organisation. However, to ensure IT’s success, CEOs anticipate spendingon IT investment will not slow, as 53% of respondents anticipated that IT budgets wouldincrease in 2008 with only 8% forecasting a decline (see fig. 4.9). Additionally, only 18%indicate they will reduce IT headcount and 9% say that they will outsource it.

A further explanation of this apparent conflict of goals, cost reduction and increasedIT spend was given by Ann Livermore, EVP of HP’s Technology Solutions Group, during aninterview with Colin Barker of ZDNet UK (posted March 31, 2008 on ZDNet). When askedhow she saw the current troubled economic situation affecting the business, Livermoreresponded:

“In fact, we see many customers who have the capacity to still invest to save.

In a data centre transformation what you are really doing is making an investment ina new infrastructure, to then be able to generate savings over a longer period of time.So those companies that have a strong cash position will often choose to do that.”

65% of respondents expect increased IT process efficiency. This corresponds withBearingPoint’s experience in the market place where we have observed a growinginterest in the utilisation of both the ITIL process framework and the Lean 6 Sigma forService process optimisation methodology to achieve these expected process efficiencies.

Improve IT’s process efficiency

Tighten management of IT-related demandfrom other departments

Consolidate IT

Reduce IT headcount

Shift a proportion of IT headcount to low-costlocation (eg, offshoring)

Defer new IT-related investments

Outsource IT function


Not applicable

0 10 20 30 40 50 60 70 80%


UK CEO Survey 2008



UK CEO Survey 2008

42% of the respondents also placed greater emphasis on tightening the managementof IT related demand from other departments. This incorporates mapping demand toresources and using financial data to provide complete cost tracking and staff time spenton project and service-oriented work. In turn, this results in accurate forecasting of futureresource requirements, and better cost tracking of existing projects and services as wellas improved prioritisation of IT activities to meet business needs.

Consolidation of IT assets (27%) is also seen as important with the need to standardiseand better use existing assets efficiently. IT Consolidation solutions reduce the complexityof IT environments while lowering costs and freeing resources for innovation throughoutthe solution lifecycle. 11% of respondents also said that they were looking to defer newIT-related spend. This confirms BearingPoint’s observation that in the current economicclimate, many firms are continuing to manage core IT assets as an expense item to beminimised rather than leveraged for value creation,

Our survey showed that offshoring was not considered to be the key focus of IT strategygoing forward, with only 14% of respondents citing this as a preferred strategy.Outsourcing was favoured even less, with only 9% saying this was a key strategy for costreduction. The relatively low forecast for use of outsourcing and offshoring by CEOs in thissurvey may reflect a changing, maturing view of drivers for implementing such strate-gies. Rather than being driven by cost alone, outsourcing and offshoring decisions mustequally consider quality of service, and ongoing business agility.


Extent to which IT cost reduction puts businessimperatives at risk

Question:

4.11 To what extent could any prospective IT cost reduction or containment strategiesput the following business imperatives at risk?

Results:

Observations:

In 2008, CEOs believe cutting back on IT investment could jeopardise their success inachieving three key business outcomes: improving business process quality; enhancingthe customer’s experience; and cutting back operational costs. They are clearly aware ITcost cut-backs have the potential to impact the business negatively, not streamline it. Inother words, sustained IT investment is considered critical. More importantly, however,for the CIO is ensuring that the IT budget is focused on meeting the CEO’s agenda andmore closely targeting their organisation’s revised strategic objectives.

Interestingly, 61% of CEOs believed that an IT cost reduction/containment exercise wouldnot have an impact on regulatory compliance. In spite of increasing environmentalawareness, reducing the IT budget is believed by 77% of CEOs to have little impact ontheir organisation’s ability to meet new environmental targets.




Enabling new product / service development





Business resilience

Outcomeat risk

Outcome slightlyat risk

NoImpact

Outcome tobenefit slightly

Outcome tobenefit greatly

0 20 40 60 80 100%


UK CEO Survey 2008



UK CEO Survey 2008

About BearingPointBearingPoint, Inc. (NYSE: BE) is one of the world’s largest

providers of management and technology consulting services

to Global 2000 companies and government organisations in

60 countries worldwide. Based in McLean, Va., the firm has

more than 17,000 employees focusing on the Public Services,

Financial Services and Commercial Services industries.

BearingPoint professionals have built a reputation for knowing what it takes to helpclients achieve their goals, and working closely with them to get the job done. Our serviceofferings are designed to help our clients generate revenue, increase cost-effectiveness,manage regulatory compliance, integrate information and transition to “next-generation”technology. For more information, visit the company’s Web site atwww.bearingpoint.com or call us on 0207 939 6100.

About HPHP focuses on simplifying technology experiences for all

of its customers – from individual consumers to the largest

businesses.

With a portfolio that spans printing, personal computing, software, services and ITinfrastructure, HP is among the world’s largest IT companies, with revenue totaling$110.4 billion for the four fiscal quarters ended April 30, 2008. More information aboutHP (NYSE: HPQ) is available at www.hp.com.



UK CEO Survey 2008



UK CEO Survey 2008

BearingPoint Ltd.

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www.bearingpoint.com

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