Profit strategy is a balancing act

There's a story going round that we're reaching the end of a long, dark period of cost-cutting and consolidation. There's only so much fat you can cut before you slice into bone, the story goes, and most companies have now reached that stage.

To boost the bottom line, you now have no choice but to grow the top line. Cost-led profit growth is all played out - and that means new investment in IT systems that support new revenue streams.

Nice theory, but exactly who says so? Strangely enough, it's the vendors.

They've finished their own cutting cycles, and they desperately need the tide to turn. And, of course, they want to help you.

Take IBM Business Consulting Services, formerly known as PwC Consulting. It issued a survey last week boldly declaring that for 80 per cent of the world's top chief executives, the "primary objective has shifted from cost-cutting to revenue growth".

Increasing corporate agility and understanding the customer better is in, cost-cutting is out. Even if we leave aside natural cynicism about vendor surveys and assume this one is right, it doesn't mean that life is changing for you and me.

What chief executives say and what they do are two different things. And what they tell chief information officers to do is something else again.

The reality is more complex than tides turning. Yes, some companies have reached the end of the cost-cutting cycle, but many - probably most - have not.

I recently met with the US chief executive of Avanade, a highly-focused and very fast-growing consultancy that specialises in hard-core infrastructure consultancy.

He reckons that the current cost-cutting cycle of infrastructure consolidation has another 18 to 24 months to play itself out, and I'm sure he's right.

But that doesn't mean we won't see revenue-growth strategies coming back. Rather, we'll see the cost-cutting and revenue-growth strategies co-existing, as one winds down and the other gears up.

Cost-cutting will continue, but will now co-exist with more interesting - and frankly more fun - programmes aimed at growing revenues. It's not about having one or the other any more. Indeed the one (cost-cutting) is needed to fund the other (revenue growth).

Both, by the way, will be approved and assessed by the same brutal financial criteria. This makes life inestimably more complex for chief information officers.

Managing two separate cycles is twice as difficult as managing one. Getting the peaks and troughs of spending in sync - so that they reinforce rather than undermine each other - is tough.

If you thought your job required high-level multi-tasking and diplomatic skills, insane hard work and intellectual genius, you ain't seen nothing yet.

What worries me is that the skillset and mentality required for prospering in one cycle is very different from the other.

Sure, lots of people can manage either at some point, but both simultaneously?

All this will indeed turn into good news for management and IT consultancies, because it increases the pressure on chief information officers to outsource the lower-value and more cost-focused parts of infrastructure, and on business managers to bring in new skills, ideas and knowledge.

And, of course, both will need help with building those new systems and managing those disruptive changes.

The second pressure point - skills and ideas - will become the most crucial problem in those organisations that laid off staff and slashed or suspended employee development programmes. Sounds familiar? I bet it does.

This doesn't mean that IT - and the chief information officer - is out of the doghouse. But it does mean that having proved you can cut costs like mad, you now have a second chance to prove yourself as a business person, not just a technologist. Good luck.

Douglas Hayward is an analyst at researcher and consultancy Ovum