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What happens to IT when global firms retreat

Bart Perkins | June 1, 2017
The IT organizations of underperforming globally integrated businesses face significant challenges.

Ideally, budget reductions can be accomplished over several years by shifting staff and responsibility for vendor charges to local operators. However, if the pressure is very high, needed investments may be deferred and employees might be laid off to meet short-term financial goals.

  • Slow the introduction of new systems. Since decentralization changes the business architecture, existing systems need to be updated to reflect the new business model. Once decentralization is announced, local staff will push to get system updates completed as quickly as possible. The combination of limited funding and the need to update operational systems typically consumes most headquarters IT staff for several years. Few if any staff will be available to create new systems.
  • Provide fewer opportunities for staff. Most IT professionals prefer to work in growing companies that are investing in IT. Maintaining existing systems is much less interesting and offers little opportunity to learn new things. With shrinking budgets and a decreasing amount of interesting work, the best people often leave. Even if there are no layoffs, such departures can demoralize staff who remain.
  • Make stock options less valuable. Excluding tech firms, options are rarely a significant portion of IT staff compensation. However, when the stock is rising, options can provide a significant pool of money for long-term employees. Unfortunately, the stock price usually falls when firms retreat, making options worth much less. While falling options values are unlikely to cause people to leave, they provide less incentive to stay.
  • Require renegotiating vendor contracts. The need for equipment, seats and support hours typically decreases as the company shrinks. In order to cut costs, contracts with IT vendors need to be renegotiated to reflect the reduced demand. This can be challenging if enterprise agreements were signed recently.

Given global firms’ successes over the last 25 years, a number of them are likely to struggle as they reset expectations from growth to retrenchment. IT leaders and staff in these organizations have grown accustomed to an expanding set of opportunities and career options. Working in a constrained environment with fewer growth opportunities will be difficult for many IT employees. Furthermore it significantly complicates the job of IT leadership teams. Headquarters IT must continue to perform sufficiently, but with less money, fewer staff and diminished political clout. Field IT must find creative ways to motivate and maintain IT staff interest and loyalty, or they may find themselves out in the field all alone.

 

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