CIOs Must Assess Euro crisis impacts: Gartner

by CXOtoday Staff    Dec 12, 2011

With extreme uncertainty plaguing all enterprises operating in the eurozone, CIOs must act immediately to protect their enterprises, says research firm Gartner.

CIOs need to safeguard their enterprises from the risks of government/bank default, euro break-up, counterparty bankruptcy and employee/customer distress.

“Uniquely positioned within their enterprises, CIOs are at the fulcrum of business and technology, and they are the only executives with sufficient visibility and potential capability to address the challenges posed by today’s eurozone crisis,” said David Furlonger, Vice president and Gartner Fellow.

Gartner says that this crisis also presents CIOs with an opportunity to make substantial and bold steps to meet CEO demands, and demonstrate the importance and true value of IT.

“Unlike recent economic difficulties, today’s crisis has the potential to totally undermine the eurozone, the whole EU and beyond,” said Andrea Di Maio, Vice President and distinguished analyst at Gartner. “Spurred on by the pervasiveness of the Internet, the crisis negatively affects every enterprise or individual doing business in or with the region. The CIO’s top responsibility is to guarantee business continuity.”

Gartner analysts said there are four broad challenges that the euro crisis raises, and they examined how the CIO is best positioned to provide enterprise leadership on addressing those challenges. These challenges include:

Market Volatility

Most enterprises and their IT departments are burdened with significant numbers of bureaucratic processes and latent decision-making mechanisms.

“Market conditions require CIOs to help develop a working environment that promotes speed, agility and adaptability, without sacrificing accountability,” Di Maio said. “Change management capabilities will be critical. The foundation to achieve effective change management will demand information, analytics, HR flexibility and a more decentralized command-and-control management structure.”

Capital Costs

Unwillingness or inability to write off debt and restructure public- and private-sector balance sheets is a substantial barrier to market efficiency. Lines of credit will likely become uncertain or removed, forcing corporations to reduce inventory.

“In this situation, CIOs will face zero-growth budgeting at best, and substantial reductions in both the investment capital and the operational budget made available to run the business at worst,” Furlonger said. “CIOs and other executives must develop contingency plans to ensure multiple backups.”

Human Capital Management

Millions of people are out of work in Europe. Formal government austerity packages and informal corporate restrictions on salaries, benefits and working conditions, combined with high costs of living, are stressing workforces.

“CIOs and business executives face significant HR issues in terms of rewarding and motivating staff, securing funds to hire appropriate new talent, and dealing with the personnel hardships of individuals entering the work environment, which impair productivity,” Di Maio said. “They must also plan for retention issues of foreign workers moving to better opportunities or the removal of non-EU work permits and visas in response to political backlash from rapidly rising unemployment, resulting in a ‘brain drain’.”

Risk Management

The capital markets (and many corporations) believe that the risk of government and counterparty default is substantial. Receivables management is being stressed, and the likelihood of internal and external fraud rises. From an IT standpoint, operational risk is heightened via issues such as changes in contractual obligations and business continuity. Added to this is the continued increase in regulatory compliance initiatives across industries.

“Now, the CIO, corporate treasurer, head trader, CFO and others need to ask questions such as, ‘Can existing risk models accommodate alternatives to the lack of historical data (in many cases, as much as three years of back data is required) necessary for regression testing/yield curve analysis of hedges, and for stressing asset and liability portfolios in the event of a redenomination in all or part of their asset and liability portfolio?,” Furlonger said.