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Story URL: http://www.silicon.com/cxoextra/0,3800005416,39168044,00.htm

Leader: Should CIOs fear the rise of private equity?
IT stands to lose some of the ground it gained post-dot-com bust...

By silicon.com

Published: Friday 03 August 2007

The rise of private equity purchases of companies which typically would have been publicly listed has been one of the biggest trends in business in the last few years. And it hasn't been without controversy.

But it's not just unions and governments and nervous boardrooms around the world studying these behemoths with their billion-dollar deep pockets and fierce reputations.

Many staff have also been concerned, often when a company has been targeted and the media jumps on the story.

Areas such as customer service are often seen as places where private equity's biggest thinkers - an upgrade of Tom Wolfe's 'Masters of the Universe' type from almost 20 years ago - see an opportunity to make cuts. After all, cutting out the 'fat' before 'flipping' a company is the archetype of what these guys are about - to simplify in a big way.

But how about IT? Can we expect it to be used as another example of 'cost centre rationalisation', as a private equity type might call it?

Retail is one vertical market that has had a lot of private equity interest - and two silicon.com exclusives this week require us to question private equity.

Neither story is directly related to private equity takeovers, we should emphasise. And yet they got us thinking about the issue.

When this publication learnt that Boots head of IT Rob Fraser was to depart after a decade at that high street stalwart, it was made clear the move wasn't related to the purchase of Alliance Boots by private equity interests, notably KKR and the company's own deputy chairman.

Similarly, when House of Fraser let its IT director retire with no plans for a direct replacement, it didn't seem to be because Icelandic investment group Baugur was now running the department store chain.

But after what seems like a period of relative ascendancy for the CIO and IT department more generally - after taking a knock when the tech bubble burst - there is a chance that because of private equity management, IT will again start reporting more and more into ops or customer service or something else.

At companies simply looking to cut, cut and then cut some more - perhaps before a sale to, or managed by, private equity firms - the outlook for IT is uncertain.

Short-termism or ignorance about the strategic role IT plays have always been problems. We don't want them to worsen.