Will Tech CEOs Retool Their Businesses in the Recession?

Technology CEOs worth their paychecks are going to use this economic downturn to revamp business models and position for the so-called post recession era. It sounds rather obvious, but why don't all CEOs follow this playbook?

We've heard the mantra repeatedly: Reload in a downturn. And a report from Forrester is just the latest to repeat the downturn playbook. Forrester Research analyst Navi Radjou argues that technology CEOs need to implement a five-point innovation program in 2009. Some CEOsâ€"IBM's Sam Palmisano and Cisco's John Chambersâ€"get it, but most are too mired in restructuring efforts to notice the opportunities. Radjou notes that Palmisano acquired PriceWaterhouseCoopers in 2002 to bet big on services. The bet has paid off.

Radjou writes:

For tech CEOs, the coming 2009 to 2011 period is going to be repeat of the recessionary 2000 to 2002 years. Constrained by shareholders' short-term demands, tactically minded tech CEOs will focus on cutting costs or driving incremental product and service innovations. But forward thinking, bold tech CEOs will emulate what IBM's Sam Palmisano did in 2002: They will choose to invest in their firms' long-term success. By 2012, when the global economy fully recovers from the prolonged recession, these visionary CEOs will dine out on their success, as their firms are handsomely rewarded by both Wall Street and their customers, leaving competitors in the dust.
Here's a look at Forrester's five key points and a few comments:

1. Generate disruptive business models: This one sounds obvious, but Forrester has a key point: Tech CEOs focus on product and service innovation, but fail to focus on business models, partnerships and supply chains. Tech CEOs need to rethink everything to take advantage of global marketsâ€"especially BRIC (Brazil, Russia, India and China) and trends like the consumerization of IT. And oh yeah IT needs to become invisible and a service. Radjou writes:

The future incarnation of IT, called business technology (BT), is not going to be as a utility but as a source of ongoing competitive differentiation -- embedded, synchronized, and capable of helping firms rapidly change business processes and, ultimately, business models. As a result, in coming years, technology will become invisible and completely embedded into the business. And rather than self-integrating technology, IT buyers will have it assembled and managed by an ecosystem of outside providers. By 2012, the dominant model for delivering technology to end user companies will be through services. To win in this new services-led IT ecosystem, software and hardware vendors will need to revamp their outdated per-unit/per-seat pricing model.
That final point is worth noting. We're already seeing a little backlash to tech firms' "milk existing customers" revenue strategies.

2. Use the creativity of all employees: Radjou argues that technology companies need to use social computing tools so innovation can bubble up. The general idea: Use tools like wikis and prediction markets to keep employees engaged. Down the line, tech CEOs will give division heads more autonomy to respond to changing conditions. Some companies such as Cisco are going down this path, but it's unclear whether a social networking groundswell is brewing.

3. Focus on customers: Forrester recommends the creation of innovation networks where user input shapes product development and investments. Salesforce.com is the poster child for this approach, but it has one key advantageâ€"one improvement suggested by a customer can be rolled out to all because it's a service. In addition, companies need to make their research and development more customer focused.

4. Treat emerging markets as hotbeds not just places to sell your wares: Technology companies need to target new markets by focusing on communities of influenceâ€"an approach that's not Western-centric. Tech buying decisions will be influenced by local community members more than any marketing pitch or individual opinion.

5. Use innovation management tools. Companies need software that collects, screens and executes employee and partner ideas on the fly. Forrester noted collaboration tools from companies like Brightidea and Imaginatik. Tech companies also need to measure innovation performance and tie it to key performance indicators.

On the whiteboard, all of Forrester's suggestions make sense. But they require capital. If you're vendor that doesn't have a healthy balance sheet and is getting clocked Forrester's suggestions will ring hollow. For the healthy tech companies, however, the strong will get stronger.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
Credit: ZDNet