JOURNAL GUEST EDITORIAL

Managing IT Governance Through Market Turbulence

We are well aware of the global financial crisis at present—given the exhaustive media coverage, it has been pretty hard to miss. It is interesting to note the impacts of this on the IT governance industry, as over the years technology has been an increasingly important business enabler. Therefore, the effects of this global financial crisis on business have also significantly impacted the IT stakeholders involved with the business.

As businesses prepare for the impact of the global credit market meltdown, IT professionals anticipate:

• Intense pressure to cut technology costs
• Mandates to improve operational performance
• A need for technology to realign to meet new business needs
• A focus on cash management and a priority around liquidity

A rapid, decisive response is the key to success here. Proactive business leaders will use a variety of tools to turn this market turbulence to their organisation’s advantage, creating a sustainable platform to emerge from this financial crisis as marketplace winners for the next growth cycle.

In my travels, I am seeing many businesses cutting costs aggressively. These cuts are across the board in all areas of the businesses, as the businesses are hurting and are finding any way they can to focus on core activities.

Immediate activities encompass reducing power costs, rationalising unnecessary technology, right-sizing software licence fees and terminating non-essential projects.

It is interesting to note that even at a time when there is significant pressure to ‘cut technology costs’, some organisations are initiating major projects with significant budgets around consolidation activities and compliance projects.The purpose of these projects is to spend short term, in order to produce long-term savings.

Businesses are considering the cost of maintenance around having multiple unique software instances installed across a variety of different hardware platforms, as well as the cost of accounting consolidation and maintenance when running multiple general ledgers. Consolidation projects around multiple software instances and different hardware platforms can produce significant savings from an operational and maintenance perspective, both from a pure technology perspective as well as from a business process and activity perspective.

The cost of compliance is ever increasing, and organisations are looking to address this by implementing automated controls. As a result, I have seen many businesses reducing their compliance costs through implementing governance, risk and compliance tools. Again, these are projects that require significant upfront investment to ensure that they are implemented properly from a business process and controls perspective. However, the long-term savings can often justify the significant project costs.

It is critical to note that while businesses focus on cutting technology costs, they will not tolerate a resultant drop in operational performance. In fact, they expect operational performance to improve, applying the ‘do more, with less’ approach.

This translates to a ‘business as usual’ expectation on the operational performance of technology to support the business. Key in this space, from a technology perspective, will be protection of information assets.

At this time of market turbulence, it is important to protect corporate information and knowledge assets. The speed and dramatic impact of the current crisis suggests that rapid technology action in key areas may help to reduce the impact of the crisis on information security, integrity and consistency. Key threats include internal security and data protection, loss of know-how, increased errors, and external security threats.

In this time, it is important for technology to keep an open dialogue with the business leaders. As the business is adapting to changes required as a result of the financial crisis, the technology group needs to be an active voice in supporting the change required as well as facilitating the required change from a technology perspective.

Active participation in this process can demonstrate proactive leadership with positive results for morale, productivity and employee retention. Key steps that can be taken include having a plan ready in advance, building agreement with the business and communicating proactively.

A key issue resulting from the current global financial crisis is the significant lack of available credit. As a result, it is important for businesses to be able to free up available cash and manage their liquidity to ensure the viability of their business.

IT can play a significant part in this process by looking at key costs that can be cut as well as reviewing the project portfolio for non-core projects that can either be deferred or terminated. Technology’s support for the process of optimising accounts receivable, accounts payable and inventory levels will also support this process. A careful examination of the timing of cash payments for vendor services is a key source of liquidity for organisations that are cash-strapped.

At times of significant business change, it is important for IT governance professionals and IT auditors to be aware of how business is changing as a result of all this activity around the financial crisis, how these changes affect the risks in a business and where new controls are required. Accordingly, IT governance professionals and IT auditors must be flexible in how they assess risks and ensure that they are appropriately covered by the necessary controls.

At this time of market turbulence, the most sought-after asset by business leaders is timely, effective information that can help them with the decision-making process. Technology plays a key role in the process of producing this information.

There has been a lot of press around the ‘war for talent’. At this time of significant change, the market for technology talent is likely to be fluid. By paying close attention to the cost and value of key skills, a proactive IT organization can reposition itself to cherry-pick top talent, renegotiating vendor contracts based on reduced cost assumptions and maintaining internal IT productivity, focus and morale.

There is also the opportunity for new technology to mitigate risk and/or create value, which is a powerful tool to help unleash new strategies or uses for information that were not possible in the past.

I am a strong believer that now is a time for focus on key priorities. Having recently moved to Asia, it is interesting to note that the Chinese characters used to describe ‘crisis’ are comprised of two other characters ‘risk’ and ‘opportunity’. Proactive business leaders will take the opportunities during this time of crisis to position themselves to be marketplace winners in the next growth cycle.

Edge Zarrella, CISA , CA
is the global partner in charge of IT advisory at KPMG. Zarrella has spent his 20-year career in business and IT advisory. His specialisations include IT strategy and governance, sourcing and projects. Zarrella has been an advisor in numerous areas including due diligence in corporate acquisitions, offshoring and outsourcing, and IT strategy.

TRIVIA

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