Dismal. That's how Moody's Investors Service described South Africa's economic performance for 2015. Moody's reckons that this country will only reach three percent growth by 2017. This after revising its earlier growth forecast for 2015 down to two percent from 2.5 percent.
Like most South Africans, Moody's is unimpressed with Eskom's loadshedding, which the investment service says is seriously hurting business and industrial consumers. The blackouts have been debilitating for business production, and have impacted the exports so badly needed to sustain economic growth.
SA's economic woes are compounded by poor labour relations and labour unrest, fuel price increases, shrinking consumer confidence, as well as unemployment and a consumer credit crisis that impacts on spending power. Moody's is right. There's no other way to put it. Our economic outlook is 'dismal'.
CIOs in the private and public sector must slay dragons in this business context. The ever-expansive role technology plays in the enterprise adds considerably to leadership stress. And then there's the matter of money - how to do more with less, how to get better returns and value.
Lise Hagen, research manager for software and IT services at IDC South Africa, says the pressure for CIOs to perform has increased dramatically in recent years. "Investing in IT is business-critical, which means there's no artificial division between what IT wants and what business wants," says Hagen.
Despite the expanding role technology is playing across businesses, Hagen says budgets are under pressure: "Budgets will be cut - that's just the reality of the market we're operating in at the moment." She adds that it's a global phenomenon and not unique to South Africa.
"CIOs are being asked to do more with less, budgets are being closely scrutinised and are shrinking in some sectors, but there is investment in strategic projects. There will always be budgets for game-changing technologies," she says, but stresses that the requirement across the board is for smarter implementation, and better deliverables or benefits.
What do CIOs expect from IT vendors? Hagen says that at recent IDC CIO summits, the people who sign off on IT budgets are looking at vendors to become more agile and relevant.
Late last year, IDC predicted that by 2015, local IT spending would surpass the $13 billion (R154 billion) mark. The researchers into IT companies and markets said IT spending in consumer verticals would stagnate, while spending in the finance vertical and by government would be more buoyant and would rise. The finance sector, IDC said, would invest in mobility and security, while government would intensify spending on automation to bring service delivery to digital platforms.
Everywhere I go, CIOs tell me that IT budgets are shrinking.
Tshifhiwa Ramuthaga, Financial Services Board
CIO of the Financial Services Board, Tshifhiwa Ramuthaga, says budgets are under pressure and it's not limited to banking or financial services. "Everywhere I go, CIOs tell me that IT budgets are shrinking - even outside the country." Ramuthaga points to the IT Key Metrics Data from Gartner, which shows that IT spending as a percentage of revenue has dropped in the banking and financial services sector.
Reinvent or die
"The 2015 report looks at 2014, and Gartner says IT spending, as a percentage of revenue, has gone down from 6.2 to 5.3 percent in the banking and financial services industry," says Ramuthaga, adding that IT spending as a percentage of operating expense has increased marginally. "In 2014, it went up from 8.0 to 8.2, and I'm assuming this could be the element of digital kicking in." She points to the growing drive for businesses - particularly in the financial sector - to include mobile in particular, and digital in general, into marketing budgets.
The call for vendors to reinvent is global. This far-reaching narrative is well exemplified in the remaking of Microsoft following the monolith's midlife crisis. Microsoft turned 40 in April 2015 with no Bill Gates or Paul Allen, but with the smartest man of the moment at its helm: Satya Nadella. He succeeded Ballmer to become Microsoft's CEO in February 2014. Just over a year later, he was singled out as the best of the best by Juniper Research, which reckoned he ranked first in its list of technology's top industry leaders.
Nadella's imperative
"The rankings, which are based on Juniper's assessment of key criteria including vision, innovation and personal capital, noted that Nadella's implementation of 'Windows-as-a-Service' represented a fundamental change to Microsoft's OS-focused business model, resulting in a very different process of development at Redmond in future," writes Juniper, in its announcement statement.
Nadella's turnaround strategy for Microsoft is, as the Economist puts it, 'to move as quickly and as far as possible away from being a Windows-only company to be a global network of giant datacentres that provide a broad range of online services for companies'.
The market reception has been proper. The New York Times' story on Redmond's rebirth was headlined 'Microsoft (Yes, Microsoft) Has a Far-Out Vision'. This story is about Nadella's remaking Microsoft's arrogance into humility, and forging a multinational that is open and collaborative. Accordingly, Deutsche Bank upgraded the firm from a hold to a buy, after analyst Karl Keirstead predicted investor enthusiasm about its Azure and Office 365 products.
Back home, Ramuthaga advises that CIOs must lead the conversation about how businesses look at IT investments in the financial sector, which is heavily regulated. "The CIO must help with putting structures in place in terms of governance, because of the element of risk when it comes to compliance and regulatory requirements. CIOs must provide leadership to assist business with prioritising IT spend," she says.
But dealing with the challenge of the 'incredible shrinking IT budget' is nothing new, says Ramuthaga. "There's never been a time when we've had enough money for all the things we need with regard to technology in business. The trick has always been how to use IT governance in order to allow for prioritisation," she says.
What we're hearing from corporate IT managers and CTOs is that they want fl exibility.
Rob Gilmour, RSAWEB
In Cape Town, RSAWEB's Rob Gilmour says the biggest pressure from CIOs is how to do more with less. The co-founder of the internet services provider says while there's downward pressure on large corporates, RSAWEB experiences the mid- to medium-sized corporate business as buoyant if not busy.
"What I think is happening is a changing mind-set that is being brought on by the possibility of a slowing in the future. People are starting to think a lot shorter term," he says, adding that business cycles are shortening dramatically. "What we're hearing from corporate IT managers and CTOs is that they want flexibility," he says. "This means flexible time-frames, flexible pricing, and wanting a lot more for the money."
RSAWEB is reinventing the way it invests with its suppliers, and is demanding more nimble relationships in which those suppliers take more risk. "We used to plan a lot longer in advance, but customers want burstable capacity or scalable capacity at very short notice." Which means the ISP is changing the way it buys, negotiates and sells.
Internet Solutions' CIO Kovelin Naidoo says the big pressure is to reduce costs. "There is an obvious correlation between a tough economic climate and pressure on corporate spending," he says. "In times like these, corporate strategies will naturally adjust to focus on increasing revenue, ensuring client retention and decreasing the cost of doing business."
But today's business context is about a lot more than just costs.
Hagen talks of relevance and reinvention. IBM's CEO Ginni Rometty's mantra is 'relentless reinvention'.
There is an obvious correlation between a tough economic climate and pressure on corporate spending.
Kovelin Naidoo, Internet Solutions
After it started to bleed in 2006, Hitachi hit the wall in 2008 when the technology manufacturing company scored the largest loss of its kind in Japan at some $8 billion. The company's agonising reinvention has seen Hitachi work hard to acquire a bigger footprint in global markets by acquiring IT systems and strategic operations that make the company more relevant. Hitachi's latest acquisition is Pentaho, an Open Source business analytics and business intelligence company.
The actionable take-away? Learn from legendary US basketball coach John Wooden's much-quoted aphorism: "Failure isn't fatal, but failure to change might be."
What about open source?
For open source infrastructure, platform and software services company Obsidian Systems, the downturned market is a bit of a blessing.
"During times of economic pressure, companies that wouldn't have traditionally looked at a solution like this have to because they're under pressure to do more for less money. And open source solutions do just that. So we tend to do well when the other guys are struggling, because open source tends to be a cheaper solution in the long run," says MD Muggie van Staden, adding that open source vendors keep prices relatively stable.
"I can honestly say that there aren't price increases - the prices for the product sets we use have stayed very much the same as for the past ten years. Typically in open source, prices aren't increased every year like some of the proprietary vendors typically do. The only pressure on prices is if the rand depreciates because the same technology would cost more because of the exchange rate," Van Staden says.
This article was first published in Brainstorm magazine. Click here to read the complete article at the Brainstorm website.
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