Get ready for CIO musical chairs, consultancy warns

A leading management consulting firm is predicting tough times ahead for CIOs, as companies cut IT spending and turn to commodity services to preserve cash during the recession.

Booz & Co. is warning CIOs that they will likely be less powerful and will remain on the job less than two years on average. In order to retain their leadership positions, CIOs will need to cut costs while continuing to find ways that IT can provide a strategic boost to business during the recession, Booz & Co. recommends.

"The relative authority of a CIO on the leadership team is probably once again going down," says Barry Jaruzelski, a partner in Booz & Co.'s high-tech practice. "It's a bit of a shift of the pendulum to IT being a necessary evil….The CFO and the controller are kings."

Booz & Co.'s technology team outlined its concerns about the fate of CIOs in a letter to clients last week.

"CIOs need to be careful if they are driving a program that was approved in a different economic environment," Jaruzelski said. "There will be more pressure on them to get it done faster and at a lower cost."

Jaruzelski recommends CIOs skip incremental improvements that aren't that impressive to users. Otherwise, CEOs will wonder why IT went through all the pain and expense of an upgrade that doesn't provide a significant enough benefit.

"Spend frugally and hold very tight to the budget," he advises. "Ruthlessly focus on upgrades only if they are high priority and obvious to the end user base."

Jaruzelski says upgrades should be tied not just to IT savings, but to savings across business operations.

"Maybe you can process just as many calls with 10% fewer telemarketers. Or you can close the books with 10% less accountants," Jaruzelski advises. "Pursue upgrades only if they are a clear enabler of taking cost out of operations. Don't do it unless the claims of savings are measurable and credible."

Overall, Booz & Co. is predicting a very difficult budgetary environment for CIOs, but not as bad as it was in 2001.

"The pinnacle of the CIO role was the period from 1999 to 2001 with Y2K and the Internet bubble, where CIOs had incredible spending authority and incredible autonomy," Jaruzelski says. "There was a huge backlash, and CIO's and CTO's authority was dramatically cut back…. It's never gotten as overblown as that. IT operations were more tightly managed, and people had better balance sheets."

Booz & Co. says IT infrastructure will not be cut back as much as classic capital equipment, such as factory machinery.

"The IT infrastructure has got a few things going for it. It's not linked to growth. It's more linked to total transaction volume and employee headcount," Jaruzelski says. "A lot of things that IT solution providers offer – hardware or software – are enabling improvements in [selling, general and administrative] expenses. If capturing those SG&A savings requires IT investments, a company may be willing to do it."