It Economic Slowdown Survey C4144

IT priorities for battling
the economic slowdown:
UK CEO Survey | 2008

Contents
1 Executive Summary 3

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

3 About the survey 18

4 CEO Survey Results 19
Where do the challenges lie? 19
Business prospects for 2008 19
Strategic barriers to growth 20
Internal barriers to growth 21
IT Priorities to meet the challenges 22
The importance of IT 22
Top business outcomes driving IT strategy in 2008 compared to
the last two years 23
Greatest impact of IT 25
Budget changes expected to meet the targets 27
Anticipated changes to headcount, operating costs,
and capital expenditures 27
Anticipated budget changes in 2008 28
Strategies for reducing or containing IT cost 30
Extent to which IT cost reduction puts business imperatives at risk 32

About BearingPoint 33

About HP 33

IT priorities for battling the economic slowdown:
UK CEO Survey 2008

1. Executive Summary
Recession 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 the
Economist Intelligence Unit, of how the current economic landscape has affected the
business outlook for UK CEOs and how, in turn, this will impact their expectations of the
IT function. The Economist Intelligence Unit was commissioned to carry out this survey
by obtaining answers to 15 key questions. This whitepaper documents the survey results
stemming from this turmoil and the impact on the CEOs’ attitudes. Further, the survey
examined how these changing CEO attitudes impact the role of the CIO and the IT
organisation. Specifically, the survey was designed to reveal answers to the following
key questions:

• How will CEO priorities, in the light of the credit crunch, translate into business
implications 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 to
improve 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 dangerous
levels, Britain's CEOs remain more optimistic. Whilst there was concern, the majority felt
that with good planning and sensible actions the next 12 months were navigable. In fact
many felt that in areas such as customer focus and cost reduction, the financial climate
had simply forced them to take actions which were probably overdue.

In the simplest terms, CEOs feel that their business could emerge from the present
slowdown as leaner and more focused organisations better able to grasp upturn
opportunities than might have been the case otherwise – although all agreed that
doing 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 to
influence their business’ fortunes. Customer to customer communication on the internet,
and in particular via social networking sites, means that positive feedback directly drives
new customer acquisition. Conversely, poor feedback can quickly translate into a sharp
drop in sales and subsequent fall in share price.

UK CEO Survey 2008 | 3

UK CEO Survey 2008

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

An inevitable reaction to market realities includes reducing operational costs. As the
CEO and the senior leadership team review and formulate plans to reduce cost, technology
costs 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 business
process 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 to
achieve cost reduction goals while maintaining business alignment through managed
IT demand. More than ever before the relationship between CEO and CIO will be critical
as CEOs hold IT responsible for delivering key capabilities and enhancements to
the business.

The core results of this survey indicate CEOs:
• Have expressed surprising confidence for 2008 outcomes but are cognisant of the
economic situation driving their organisations to re-plan 2008.

• Understand this challenging environment has provided context and opportunity to
execute 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 of
their operations.

The major implications for CIOs and their respective IT organisations:
• CIOs will be held accountable to deliver more advanced customer focused capabilities
and productivity enhancements.
• CIOs will be held accountable for reducing firm-wide operations spend. This includes
controlling cost within the IT organisation as well as managing IT demand across the
business and enhancing business process optimisation.
• CIOs should expect heightened scrutiny of the value that IT provides to the business
given the overall contraction of firm-wide spend.

4 | UK CEO Survey 2008

UK CEO Survey 2008

Key CEO Survey Findings
Our initial hypothesis forecast that the dramatic changes in the economic climate would
force firms to review and adjust plans, investments, and activities for 2008. The following
results 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 2008
as good or very good.

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

UK

Europe

Globally

0 20 40 60 80 100 %

Very good Good Indifferent Poor Very poor Not applicable

Even with the economic news to date, our UK CEOs are optimistic they can chart a
course for their organisation’s success. While course corrections were necessary in terms
of adjusted focus, resources, and specific actions, they communicated confidence in
moving 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.


UK CEO Survey 2008

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 to
growth in 2008 for your business within the UK?

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

0 10 20 30 40 50 %

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

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

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


UK CEO Survey 2008

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

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

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

0 10 20 30 40 50 60%

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

As noted in fig. 1.2, 30% of surveyed CEOs identified the decline of consumer spending
power as an additional barrier to growth in 2008. In other results, although spending
reductions are anticipated across the business, CEOs do expect to address these
challenges, with marginal increases in 2008 budgets for strategically important areas.
51% of CEOs forecast an increase in customer service budgets, 50% forecast an increase
in 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 to
contract their overall discretionary investment, it is clear from the survey results that
CEOs will renew focus on, and in some specific areas increase budgets for, improving
their business’s interaction with the customer.

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


UK CEO Survey 2008

CEOs also see high operational and workforce costs as being the
greatest internal barriers to growth in 2008.
1.4 Which of following represent the greatest internal/operational barriers to growth
in 2008 for your business within the UK? Select up to three.

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%

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 these
high costs (see fig. 4.7). CIOs will be asked to deliver efficiencies in their ongoing costs
as 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 staff
headcount and almost half expect reductions on temporary and/or consultant staff
headcount (see fig. 4.8). IT will need to focus on enabling increased staff productivity
as part of the solution delivered to the business units.


UK CEO Survey 2008

As a result, the CIO and the IT organisation are crucial assets for
the CEO to enable the business to thrive in this challenging new
economic climate.
1.5 How important do you think IT will be in helping the organisation overcome these
challenges you face?

Very important

Important

Not very important

0 10 20 30 40 50 60%

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

In other results, less than 1 in 5 CEOs will reduce IT headcount. Most CEOs will ensure
adequate IT resources are available to address business challenges. Nonetheless, it is
clear that CEOs will expect the IT organisation to contribute to overall spending
reduction initiatives.

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

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


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, and
Ellen S. Kitzis, Group VP of Gartner’s Executive Programs state that “60% of your new
areas 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 the
CEO’s firm-wide goals along these specific objectives:

• Connect to your Customer – Work closely with your business unit leaders to partner
in renewing customer focus and investment – first with the aim of wringing value
from existing CRM systems and secondly to apply customer experience management
solutions 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 level
of consolidation nor do they use strong standards consistently in practice.

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

Transform Your IT Organisation

Successful CIOs will drive their IT organisation to transform its capabilities and cost
structures. 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 that
HP wants much of the same from its own IT that its customers want from their IT, which
includes driving maintenance as a percentage of IT spend from 70% to 20%, halving IT
cost, providing instant access to information across the corporation, lowering risk, and
producing a measurable suite of products along the way.” Focusing on the following
objectives will begin this transformation:

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

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

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

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

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


UK CEO Survey 2008

2. CIO Considerations for
Taking First Steps
Enhancing Customer Experience:
enabled through technology, led by the business
Against a back-drop of ever increasing customer to customer communication, businesses
are becoming ever-more aware that both good and bad customer experiences can be
transmitted swiftly to an audience of millions.

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

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

Success in achieving such a position depends on deep customer insight and segmentation
informed by customer intelligence derived from the information within the organisation
and from third party sources, crucially supplemented by primary research and trade-off
analysis. Building on this customer intelligence foundation and by consolidating competitor
insight, the next step is to architect an integrated proposition across marketing sales and
service that embeds distinctive and seamless customer experience at every touch-point
of 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 terms
of people, process, data and technology changes across the full customer lifecycle.

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

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


UK CEO Survey 2008

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

Marketing*
(n=1,482) 37% 28% 27% 8%
Customer analytics‡
(n=622) 36% 27% 31% 6%
Customer service†
(n=862) 35% 22% 26% 17%
Indirect sales†
(n=845) 33% 27% 21% 19%
Customer data
management ‡ (n=633) 31% 30% 34% 4%
eCommerce*
(n=293) 30% 23% 27% 20%
Customer strategy§
(n=635) 25% 30% 40% 5%
Technology
§
Infrastructure (n=1,035) 23% 25% 45% 7%
Field service‡
(n=293) 22% 13% 13% 52%
People management§
(n=1,213) 20% 32% 44% 4%
Direct Sales*
(n=720) 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)

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

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

CIOs need to invest more time with business unit leaders to identify opportunities where
the appropriate use of technology can help to enhance and simplify business processes
to meet customer expectations. Working closely with the business to articulate the
technological requirements clearly within the overall customer strategy that is driving
a 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 CRM
solutions supporting longer term enhancement of CRM functionality and insight
management

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


UK CEO Survey 2008

Using Real Time Marketing to drive revenue and enhance
customer experience

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

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

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

With so many sources feeding information into a decisioning platform, establishing
a content profile for each customer is essential. This profile will help determine the
importance and impact of various influences on the customer relationship, from
previous purchases, attitudes, behaviours and interactions to external influences such
as government regulations and industry shifts. This profile must also support dynamic
content taking into account major changes in a customer’s profile, such as moving to
a new city or taking a new job. This is key so that a response to current needs and
desires 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 insights
and primary research. Business rules that effectively gather, incorporate and arbitrate
attributes from these various systems need to be set in place. Most importantly these
rules will also recognise that in order to become truly customer centric, customers must
be 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 a
differentiated customer experience supported by the insights and technologies which
enable seamless interaction with an organisation combined with a relevant and
emotional 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 number
of industries. We have moved from paper based enablement to electronic enablement.
However, CIOs face a huge challenge in ensuring the business maintains high service
levels and supports business growth while ensuring the underlying cost structure
improves rather than erodes profitability.

Improved IT efficiency tackles both sides of this equation and depends on transforming
the 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. Cost
reductions must also be managed in support of maintaining alignment between business
and IT plans.

These efforts will force CIOs to transform technology cost structures as well as provide
fundamental cost transparency to the business. IT cost take-out and IT cost transparency
enable the CIO and the IT organisation to target inefficiencies and sustain those cost
efficiencies through ongoing positive business behaviour. Positive behaviour is reinforced
by clear understanding of value aligned to cost.

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

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

• Outsourcing

• Off-shoring

• Consolidation


UK CEO Survey 2008

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

2.2 Key steps to IT cost take-out

IT Infrastructure & Processes
Physical Infrastructure Services & Processes
Data Center Service Desk
Server and Storage Processes
Applications information Platform

Business Case Evaluation Cost Take-Out Business Case

Business Driver
and Framework
Identification

Assumptions and
Risk Analysis
Analysis & Modelling Executive
Summary

Detailed Modular
Analysis

Benefit and
Payoff Analysis

Low hanging fruit Strategy Cost Efficiency
indentification Alignment Alignment Alignment

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.

Implementation Roadmap

Assessment Service Desk Service Desk
Service Desk
Strategy Foundation Improvement

AM Planning

Assessment AM Install AM Production Migration
Data Center
Strategy EMEA Planning
EMEA Install EMEA Production Migration

Standardization Planning Standardization Implementation
Server and Infrastructure Server Conso. US/FR/GER Apps. Serv. Conso. RoW Apps. Serv. Conso.
Storage
Legacy System Consolidation
Germany File Server Storage GER/FR/US Storage Conso. RoW Storage Conso.

Global Problem Mgmt Regional Problem Mgmt
Global Monitoring Regional Service Monitoring
Processes Global Change Mgmt Regional Change Mgmt
Global Asset Management Regional Asset Management
Global Release Mgmt Regional Release Mgmt

Portal
Information Design & Pilot Portal Global
Global
Platform Implementation Deployment
Extension

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


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 based
upon usage of IT services, then relating those usage costs to applications that the
business uses to perform a business process or function. This involves taking an end to
end perspective of costs and understanding the relationship between all the underlying IT
services required to deliver a specific business outcome. For example, within a bank a CIO
would need to piece together the cost of the people and the tools that they use (phone,
2.3 Sustaining IT cost transparency desktop etc.), hardware, software, network and facilities that relate to an
application such as ‘mortgage servicing’. The CIO then needs to
Technology Service Catalogue understand the impact that application has on the
Service Levels, Service Pricing specific business area and how this affects the
overall performance of the bank. By providing IT
cost transparency a CIO is able to avoid being
just the “IT order taker” and is better
equipped to educate business leaders
Key Cost across the organisation about the cost
Driver-Based Planning Technology Costing
and Forecasting Management and Resource implications of their own decisions.
Components Consumption Metrics
As most IT organisations serve multiple
business units, it is important that
communication must include the aggregated
demand and its effect on aggregated resources
Technology Chargeback / in order to be effective. Aggregated demand is
Business Line Invoicing for most valuable when demand from projects (strategic
Technology Services
demand) and service requests (operational demand) can be
mapped to the aggregated resources. This enables a complete picture
of demand and resources to be communicated. With this common understanding in
place, it becomes much easier for the CIO to manage demand for IT services because the
business leaders understand specifically how their decisions impact their costs for IT
services and how multiple demands can come into conflict necessitating executive
decisions. Most firms without tightly linked demand management generate false
economies for the IT services. The coupling of demand management with costing secures
the ability to predict future costs for IT services and the ability to save money by
encouraging more efficient use of IT services.

Effectively managing demand has a high impact on overall costs. For example, if during
peak times the mainframe utilisation is 90%, decisions can be made to influence behaviour
so 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 can
produce significant cost avoidance. Facilitating the conversation with the business to
generate demand forecasts and assimilating those forecasts with consumption models
enables the assembly of realistic business/IT plans. These plans will begin to ensure
capacity is in place when needed and will help to combat the need for CIOs to over spend
on excess capacity in high cost areas such as networks and mainframes simply in order
to 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 it
has acquired other companies over the years, the total and per transaction costs can be
identified and the business along with IT can rationalise applications in order to achieve
significant cost reductions. This cost transparency also enables the IT organisation to
identify 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.


UK CEO Survey 2008

Importantly, IT cost transparency allows CIOs to apply industry or internal benchmarks
to the costs of discrete components involved in delivering IT and highlight where cost
reduction efforts will deliver the greatest return. In turn this facilitates the prioritisation
of 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 solely
on the IT function but on process and policy changes too. For example, how data is
classified has a direct impact on data storage costs. If a substantial amount of data is
unnecessarily classified as tier one, organisations will bear the burden of paying
premium prices for this. Changing policies and procedures to classify data appropriately
could significantly reduce costs permanently.

Rapidly measuring IT costs puts a strong foundation in place. Continuous monitoring
of how changes impact the business will also make it possible over time to forecast the
bottom line implications of scaling capacity up and down to match changing business
volumes. More importantly it will provide information to business leaders that allows
them 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 traditional
service level definitions to service levels which measure actual customer experience in
business impact terms. This will provide feedback to further refine investment and better
align IT activities to creating business value.

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

Finally, for methods like IT cost transparency to have sustained impact, governance
models must be evolved. The CIO and the business unit leaders must have ongoing formal
interaction which will enable both the management of cost in the short term as well as
the management of how new technologies, services changes, and other cost elements
are 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 joint
BearingPoint/HP white paper, based on a survey conducted by the Economist
Intelligence 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-based
companies during the first half of 2008. We would like to thank the respondents for their
time 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 at
least US$100m. Half of all firms had revenues of more than US$500m, with about one in
four 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
0 5 10 15 20 25
No. of CEOs


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 the
UK, Europe and across global marketplaces?

Results:

UK

Europe

Globally

0 20 40 60 80 100%

Very good Good Indifferent Poor Very poor Not applicable

Observations:

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

Despite the news of mounting concern over the economy, the majority of CEOs are
positive in their outlook for business across different regions. This indicates the CEOs
surveyed 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 lower
than for Europe or other parts of the globe.

All companies – not just financial institutions – are now feeling the impact of the credit
crisis 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 on
consumption. In turn, consumer behaviour could squeeze companies’ sales and profit
margins unless firms have a clear strategy for being able to counteract this squeeze.


UK CEO Survey 2008

Strategic barriers to growth
Question:

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

Results:

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%

Observations:

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

Macroeconomic pressures were seen as the greatest strategic barriers to growth in
2008 for businesses within the UK by 43% of respondents. Macroeconomic factors include
growing economic uncertainty, with banks taking fewer risks, at the same time the cost
of wholesale borrowing on money markets remains high along with rising oil prices and
crop 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 decline
in consumer spending power. Consumers are now reprioritising spending plans in light of
increasing 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 CEOs
surveyed identifying a decline in consumer spending power as one of their top-three
concerns. Heavy discounting has failed to prevent a slump in sales on the high street, and
there 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 raw
materials is also likely to take its toll on businesses and their earnings, forcing companies
to increase prices.


UK CEO Survey 2008

An example of how these barriers to growth are starting to impact the UK is in the
services sector. The slowdown in financial services has been well publicised and the UK
is also likely to see slowdown in the broader services sector. The Confederation of British
Industry (http://www.cbi.org.uk) reported that ‘levels of business volumes and values
remained weak for the sector as a whole, and neither consumer nor business services
firms are positive about business expansion over the coming year. They have also become
more 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 lack
of available local talent will be a major factor hampering future growth. Indeed, two of
the major problems that UK businesses will contend with in 2008 are the shortage and
cost of talent. This is especially true for those companies looking to bolster talent in the
IT department. The number of graduates in the UK with IT-related degrees has declined
steadily 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 to
growth in 2008 for your business within the UK? Select up to three.

Results:





Supply chain issues






0 10 20 30 40 50%

Observations:

High operational related issues such as integration and workforce costs continue to be
top 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 for
CIOs is how to reduce operational costs in order to increase the budget for innovation and
new 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 and
IT 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 to
unforeseen technical obstacles, or inability to adapt readily to evolving business needs.


UK CEO Survey 2008

The survey also found supply chain issues (26%) continue to be a constraint. Much of the
success of a firm’s supply chain hinges on competent procurement practice. Procurement
solutions that help companies sustain margin improvements are built by implementing
leading industry practices across the enterprise, including IT. BearingPoint’s experience
indicates savings in the range of 10% to 20% can be reasonably expected by most
organisations.

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

Respondents were also acutely aware of a high workforce turnover (16%). Reducing
turnover and retention of key personnel remains a key area to ensure that organisations
are 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 these
challenges you face?

Results

36% 51% 12%

0 20 40 60 80 100%

Very important Important Not very important

Observations:

The role of IT continues to become increasingly important to business success. The survey
shows that the IT department will play a crucial role in helping companies meet future
business 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 where
budgets 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 better
information for the company–so that the business executives could make informed
decisions–and driving better efficiencies and applications for the business. It was about
transforming 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 in
meeting their business goals and therefore seek to optimise and more tightly manage
the IT investment process rather than curtail it.


UK CEO Survey 2008

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

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

Results:

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



Enabling new product / service development




Business resilience



0 10 20 30 40 50 60%

2008 Past 2 years

Observations:

Using IT to improve the customer experience is now the number-one priority on the
agenda for CEOs, with 55% of respondents saying that this will be the top business
outcome that is likely to drive their IT strategy in 2008. Retaining and increasing business
from existing customers can be linked to improving quality of management information
to 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?


UK CEO Survey 2008

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

Next generation CRM implementations will focus on delivering customer intelligence (CI)
capability. Newer CI technology allows decision makers to collect, analyse, and model
consumer data, across all channels, offering them faster, more accurate, more predictive,
insightful, and relevant customer information. Across all industries organisations need to
expand their definition of CI to include predictive analytics, decision modelling, real-time
decision engines, combination of structured and unstructured data, as well as support
for decision making, collaboration, and workflow management in order to create an
“on-demand” analysis tool that supports business processes. The need for this next
generation 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 vitally
important as greater emphasis is made to increase business effectiveness by increasing
the value of high quality information assets. Information quality problems cause
business processes to fail.

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

Only 20% of the respondents also saw business resilience as an important factor affecting
IT strategies. Nonetheless IT is vital in ensuring organisations’ business operations to be
prepared, 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 organisations
meet environmental targets. Just 14% of respondents said environmental factors are
driving their IT strategies. Despite this, ‘green IT strategies’ can deliver rapid results,
including power saving and recycling and flexible working and teleconferencing to grid
computing and virtualisation.


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 to
help overcome these challenges? Select up to three.



Supply chain issues








0 10 20 30 40 50%

Observations:

CEOs see IT as having most impact in the area of reducing operational costs. Given that
53% of respondents also plan an increase in their IT budgets (see figure 4.9), and 87% say
that IT will be important or very important (see 4.4) in addressing the challenges faced
by the business in 2008, there is a clear strategy of investing in IT in order to achieve
these savings.

IT can reduce costs by enabling simpler business processes. Given that the business
processes are automated or facilitated by the underlying IT systems, simplification of
these systems is critical. Successful simplification requires IT governance at an enterprise
level and the role of the group CIO is pivotal in encouraging, enabling, and facilitating
this 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 for
maintaining competitive advantage.

Being able to integrate IT systems effectively within a single organisation has proved
to be a great challenge for many firms. Achieving integration across multiple tiers of
companies in a supply chain is a much bigger challenge. Many companies have high costs
of doing business due to having to maintain separate and different technical infrastructures
for communicating with each of their suppliers or customers. Interoperability should not
be taken for granted.


UK CEO Survey 2008

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

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

Many companies are moving towards implementing technology solutions like service
oriented architectures (SOA) to enable easier re-engineering and leveraging of business
services and technology components. Implementation of business process management
systems (BPMS) could also provide the next step in improved business agility by putting
control of technology automation of business processes back in the hands of the business.


UK CEO Survey 2008

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 capital
expenditure 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%

Significant Moderate No Moderate
Reduction Reduction Change Increase
Significant Don’t
Increase Know

Observations:

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

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

The need for differentiation through innovation and high quality service experiences
in order to encourage customers to remain loyal as well as entice new consumers
into the fold is increasing as a consequence of the credit crunch impact on consumer
spending. This challenge is exacerbated by the lack of local talent experienced by
firms 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 to
human resources in 2008. About one-third (34%) of CEOs polled say that there will be a
significant 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 will
a 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 therefore
businesses are likely to seek ways of reducing these costs.

UK CEO Survey 2008

Anticipated budget changes in 2008
Question:

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

Results:

Procurement & supply chain

Finance

Risk management

IT

Marketing / sales

Customer service

Research & development

Human resources

Operations & production

0 20 40 60 80 100%

Increase Increase No Decline
Significantly Moderately Change Moderately
Decline Don’t
Significantly Know

Observations:

Even with significant concern regarding high operational costs, CEOs will judiciously
focus cost management efforts through targeted budget adjustments to specific
functional 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 and
decline in consumer spending. From a CIO perspective, the creation of synergies between
IT initiatives, customer services, and marketing teams (all of whom share in the biggest
budget increases) will continue to grow in importance. Clearly, better systems and
improved customer service are set to be strongly linked. This demonstrates businesses
will focus considerable energy on improving both customer satisfaction and loyalty.


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 operational
costs being seen as the greatest internal/operational barrier to growth in 2008 by half
of the survey respondents, 41% of CEOs still expect to invest in overall operations and
production in 2008. It may also explain why spending on IT doesn't show any imminent
signs of a decline. However, this may come later. Analysts often talk of a "lag" period
between 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 is
notable given the turnover rates and the number of HR actions anticipated.

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


UK CEO Survey 2008

Strategies for reducing or containing IT cost
Question:

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

Results:

Improve IT’s process efficiency

Tighten management of IT-related demand
from other departments
Consolidate IT

Reduce IT headcount

Shift a proportion of IT headcount to low-cost
location (eg, offshoring)
Defer new IT-related investments

Outsource IT function


Not applicable

0 10 20 30 40 50 60 70 80%

Observations:

If costs are to be contained, how do CEOs expect their IT chiefs to do this? Nearly
two-thirds of those surveyed (65%) expect CIOs to improve IT process efficiency, while
42% will seek to cut IT demands from other departments within the organisation and
27% will look at consolidation.

IT chiefs will come under increasing pressure to ensure optimal use of technology
throughout the organisation. However, to ensure IT’s success, CEOs anticipate spending
on IT investment will not slow, as 53% of respondents anticipated that IT budgets would
increase 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 increased
IT spend was given by Ann Livermore, EVP of HP’s Technology Solutions Group, during an
interview with Colin Barker of ZDNet UK (posted March 31, 2008 on ZDNet). When asked
how she saw the current troubled economic situation affecting the business, Livermore
responded:

“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 in
a 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 with
BearingPoint’s experience in the market place where we have observed a growing
interest in the utilisation of both the ITIL process framework and the Lean 6 Sigma for
Service process optimisation methodology to achieve these expected process efficiencies.


UK CEO Survey 2008

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

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

Our survey showed that offshoring was not considered to be the key focus of IT strategy
going 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 cost
reduction. The relatively low forecast for use of outsourcing and offshoring by CEOs in this
survey may reflect a changing, maturing view of drivers for implementing such strate-
gies. Rather than being driven by cost alone, outsourcing and offshoring decisions must
equally consider quality of service, and ongoing business agility.


UK CEO Survey 2008

Extent to which IT cost reduction puts business
imperatives at risk
Question:

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

Results:




Enabling new product / service development





Business resilience

0 20 40 60 80 100%

Outcome Outcome slightly No Outcome to Outcome to
at risk at risk Impact benefit slightly benefit greatly

Observations:

In 2008, CEOs believe cutting back on IT investment could jeopardise their success in
achieving three key business outcomes: improving business process quality; enhancing
the customer’s experience; and cutting back operational costs. They are clearly aware IT
cost cut-backs have the potential to impact the business negatively, not streamline it. In
other 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 and
more closely targeting their organisation’s revised strategic objectives.

Interestingly, 61% of CEOs believed that an IT cost reduction/containment exercise would
not have an impact on regulatory compliance. In spite of increasing environmental
awareness, reducing the IT budget is believed by 77% of CEOs to have little impact on
their organisation’s ability to meet new environmental targets.


UK CEO Survey 2008

About BearingPoint
BearingPoint, 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 help
clients achieve their goals, and working closely with them to get the job done. Our service
offerings 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 at
www.bearingpoint.com or call us on 0207 939 6100.

About HP
HP 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 IT
infrastructure, 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 about
HP (NYSE: HPQ) is available at www.hp.com.


UK CEO Survey 2008


BearingPoint Ltd.
3 More London Riverside
London, SE1 2RE, United Kingdom

www.bearingpoint.com

© 2008 BearingPoint, Inc. All rights reserved. Printed in the United Kingdom.
BearingPoint(registered symbol) is a registered trademark of BearingPoint, Inc.
or its affiliates in the United States and other countries. Any other marks are
the property of their respective owners. C4144-0907-01-USRD1017

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