Prepare For The Impact Of The Euro Crisis on Your IT Department
January 24, 2012Watch
out; it’s not just a European problem
Everyone knows that the Europeans are facing a major economic crisis triggered by poor government financial management in the Euro zone. But many managers outside Europe don’t see this as impacting them, especially if their own business is doing well. They are wrong.
All organizations depend on suppliers that operate globally. But they have typically paid little attention to how well the larger suppliers are doing; too big to fail comes to mind. But any global service provider that depends substantially on sales in Europe may see their revenue decline, whether their head office is in Paris, New York or Shanghai. IT Service Providers in particular depend on Europe for a significant proportion of their sales. IBM is at 33% for EMEA (Europe, Middle East and Africa), Oracle at 31%, EMC at 29% and Cisco at 20%.
Service providers make a lot of changes to protect their profitability when revenue declines, even if they continue to be viable. And some of these changes reduce availability and quality of service (as a result of labor reductions and manufacturing cutbacks) and can slow down product development cycles. If you depend on these service providers to perform at superior levels, and any of these changes happen, they can impair your ability to meet commitments to your organization.
Predictions? There is no magic crystal ball
It’s interesting to speculate how the Euro crisis will evolve and how much damage it will do not only to Greece, France and Germany, but the United States and China. But speculation rarely leads to action, and action is what IT managers need to take when their suppliers face significant potential revenue shrinkage. There is no unanimity among economists other than agreement that the news is bad, so which prediction would you believe?
It’s not feasible to assess the level of risk facing a specific supplier (Nortel comes to mind). Quarterly financial statements are published well after the fact and financial forecasts in uncertain times are not dependable.
Wait or act now? Do you like to gamble?
We can’t predict where the world economy is going and how it will impact global IT service providers. And we can’t assess whether any of our key suppliers is at risk. So most of us will do nothing, and hope that this economic storm bypasses us and our suppliers. But we can and should make an assessment of where we are significantly vulnerable to supplier deterioration. And we should take steps to identify a plan B in case deterioration becomes apparent.
Identify major risks and build a plan
We recognize the impact of possible negative events on our ability to provide critical services to our organization. We plan contingencies for hurricanes, major power blackouts and disease epidemics. But we don’t generally plan for what to do if a major service provider fails to deliver the level of service or improvements that we have taken for granted.
The Euro crisis has a very high probability of reducing revenues for IT service providers. Some resulting cost reductions will cause deterioration of service. Dependence on service providers has increased. Approach this as you did planning for disaster recovery. Identify the suppliers on whom you depend for excellence of availability and performance of operational services, hardware and software maintenance, speedy equipment and parts delivery. And start identifying contingency plans.
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