Changing strategic goals as a result of the financial crisis

Reposted, original on the “IT Governance, the Kapteyn’s view” blog on Computerworld UK in March 2009

One of the primary objectives of IT governance is to align IT Strategic goals with the organization's strategic goals . A clear understanding of the organization's strategic goals and the reasons behind them is the first step in achieving this objective.

Strategic business goals have shifted for almost every company as a result of the financial crisis. Short term survival has become a topic on virtually every C-level agenda. The resulting issues facing the business include:

• lower income due to lower customer (both consumer and business) spending
• lack of investment capital from the financial markets (as a result of financial institutions’ unwillingness to supply loans)
• increased business risk (increased risk of business partners defaulting on their commitments)

All this insecurity leads to organizations trying to increase their financial reserves. To achieve this business leaders focus on improving their cash flow, ensuring each month enough money comes in to pay for the bills and hopefully even a bit more, to improve the financial reserves. In the worst of times the cash flow is negative (more money is flowing out than coming in), eating into the reserves. When the reserves are depleted in combination with a negative cash-flow the organization goes bankrupt. This explains the sense of urgency shown by top management.

For a correct understanding of the cash flow equation it is important to understand it is only concerned with actual money flows:

• Sales on credit do not actually bring cash into the company at the moment the deal is closed. Only when the credit is due (and paid) does it result in positive cash-flow
• On the other hand, depreciation of assets does not involve actual payments leaving the organization so this also does not influence cash-flow

So that is the organizational side of strategic goal setting.

When confronted with this (or similar) thinking, how should this impact IT governance? What should be the impact of corporate goals aimed at improving the cash flow balance? There are two reactions here:

First, let’s consider the cash flow impact of the IT function. Since most IT functions are not-for-profit centers, increasing income is not part of the options. This leaves reducing expenditure as the logical IT goal. It is important to understand here that this is about reducing expenditure, not just cost. As mentioned before, expenditure and cost is not the same thing.

Second, IT is an important supplier of services to almost all business segments. Each of these segments will also be confronted with the corporate goal of improving the cash flow balance. The manner and speed with which the IT Function can adjust to support each of these segments in realizing this goal is a measure of the business-IT alignment of the organization.