Quelle: CIO, USA
This much is true: Companies have slammed the brakes on IT spending inthe past year and a half - a fallout from the recession, 9/11 and astock market suffering from an onslaught of questionable accountingmethods, outright fraud and jittery investors.
The technology engorgement that commenced in the late 1990s has sosatiated companies that requests by CIOs for even a few crumbs - a newJava programmer, a desktop upgrade - now get as much scrutiny as arequest to fly first-class to the Cleveland office. "I don't thinkthere will ever be a return to what happened - the perfect storm ofY2K, ERP and the Internet," says Paul Hoogenboom, vice president ofoperations and CIO at Medina, Ohio-based RPM, the maker of Rust-Oleumand other specialty coatings.
But there may be some light peeking out from under the dreary haze:According to "IT Planning for the Economic Recovery," a recent CIOResearch survey of 251 IT executives, nearly 60 percent of technologyexecutives see IT spending picking up either this year or by the firsthalf of 2003. And 18 percent said their spending never slowed down(see complete survey results at www2.cio.com/research).
Investing wisely in technology now can help grow the business and giveyou a jump on the competition still ensconced in their foxholes. Factis, it's still a buyer's economy out there - vendors are practicallytrampling over each other to earn or maintain your business. Tosweeten the pot, they're offering deep discounts on hardware andsoftware, performance-based contracts, and flexible pricing plans.Taking advantage of this reversal of fortune between buyer and seller,plus continuing to invest in technologies that can help you get closerto your partners and customers, may be just the cure for yourrecessionary ills.
Get a Jump on the Competition
Despite the mixed signs of a recovery, this could be the best time toconvince senior management to increase IT spending, especially if yourIT budget has been heading south instead of north. That advice maysound counterintuitive to some, but if your competitors are lying low,waiting for a turnaround, jump-starting your technology investmentscan put you in the passing lane while the competition continues toramble along at 55 mph. "If your competition is risk-averse, if youdare to innovate, the risk is higher but the payoff can be fantastic,"exudes Howard A. Rubin, executive vice president at Stamford,Conn.-based technology consultancy Meta Group. At the heart of hislogic lies a trend he's seen in IT management for the past two years:Technology is being managed more like an investment portfolio - sure,you need conservative investments, but the only way to generate bigpayoffs down the road is to take a few risks.
Rubin cites Blockbuster, which - instead of pulling in the reins whilein the face of the online digital entertainment onslaught - isinvesting in new technologies, such as self-service checkout (akin toMobil's Speedpass). He also points out that British Airways, which isbuilding a new, innovative facility at London's Heathrow Airport, isplanning to use technology (for example, radio frequency tags to trackbaggage and self-service check-in areas) to make the flying experiencemore efficient and pleasurable. "The winners in IT will be determinedby managing risks and not following the pack," Rubin says.
At Boston-based MFS Investment Management, home of America's firstmutual fund, CIO Peter Noll enthusiastically agrees with that line ofthinking. In fact, he sounds downright cheery when discussing theeffects of the recession. "We see it as an opportunity to leapfrogcompetitors in areas that we think are going to be high growth whenthe market turns around," he says, mentioning its institutionalmarketplace and global investing unit as high-value opportunities.Technologies that will help support those initiatives include ahigh-capacity 100MB network across the enterprise, and a new real-timemessaging infrastructure (IBM's MQ series) to support the company'sglobal operating model, and it will implement a storage area network."We're hunters, not farmers," he says. "During a down time, we keephunting."
Riding Out the Storm
A number of IT budgets took swan dives in 2001 and 2002, intandem with a drop in corporate revenue andincome - according to our survey, 43 percent of companies sawtheir 2002 IT budget decline. Consumer product companieswere hit particularly hard. Aydin Onur is vice president ofe-business at Sunnyvale, Calif.-based Philips Components (adivision of Philips Electronics), which manufacturescomponents for the OEM market as well as for consumerelectronics, such as cell phones. Onur watched his actualspending in 2001 drop a precipitous 42 percent from what wasbudgeted at the beginning of the year. For 2002, hisspending will decline 25 percent from 2001. "The recessionhad a big effect on all the market segments we play in," hesays. Some projects were terminated and some staff was letgo. And a number of projects were put on hold, including aproduct data management system, an ERP consolidation programand a CRM system.
However, for all the harsh numbers and gloomy macroeconomic realitythat ushered in 2002, a good chunk of companies increased their ITbudget this year. For instance, at Ryder System, the recession hadlittle effect on IT spending because senior management believes thatIT is critical to staying competitive and serving its customers. "Inreality, we didn't take a hit or go below a certain budget line," saysEduardo Vital, executive vice president of IT services and CIO of theMiami-based global transportation and logistics company. In fact, theIT budget for 2002 at Ryder rose about 12 percent over 2001, anincrease similar to those in the previous four or fiveyears.
As Spending Picks Up, Where Will the MoneyGo?
Our survey showed that IT executives are conservativelyoptimistic that spending will pick up - 30 percent said thatit would happen in the first half of 2003, and 86 percentsaid that company performance is an important factor whenmaking decisions about IT, which may be a sign that theyhave confidence their company will benefit from theeconomy's gradual recovery. [Editor's note: At the time thisstory was reported, most companies were still in theplanning stages of their 2003 IT budget.]
In addition, 45 percent said they plan to accelerate spending oninfrastructure upgrades, such as servers; 30 percent expect to investin CRM; and 29 percent plan to increase desktop upgrades andreplacement expenditures. Other popular areas for increased spendinginclude security and legacy system migration (25 percent), ande-commerce and software upgrades (24 percent). Rubin says that he seesinfrastructure consolidation as a popular trend.
At Irving, Texas-based Flowserve, a provider of flow control productsand services, Vice President and CIO Rory MacDowell says it's tooearly to tell what his 2003 spending will be. However, he knows thatthree of the top priorities will be integration (including a plannedCRM project), standardization (hardware and software platforms, toolsand processes) and digitization (which includes e-business andinternal productivity projects). MacDowell says one of the main goalsof his standardization efforts will be reducing the array of differentmanufacturing systems, which currently number more than 40. He alsohopes that standardizing will help achieve an internal goal of $15million in revenue per IT employee.
Philips's Onur says his division will be aiming to restart theprojects it put on hold this year, including product data managementand CRM projects. Onur hasn't finalized his 2003 budget yet, but hebelieves it will be flat, or at best, may see a slightincrease.
At Ryder, Vital is shooting to increase next year's IT spending bymore than the 12 percent growth it has been averaging in recent years.Part of what attracted Vital to the job was the increasingly importantrole IT plays in the company. "The IT organization has a new charterto act as a business strategy partner; [to act] in a consultingcapacity to business areas," he says. "It's a different perspective onhow IT can bring value to the organization." Major areas of focus nextyear include EAI projects, its warehouse management system andleveraging the Web in its third-party logistics business. Vital mayalso add another 20 to 30 IT staffers. He notes, however, that therewill be cost-containment initiatives in the operating budget in areassuch as network bandwidth and phone coverage.
Some companies ply their trades in industries that are immune toconsumer-driven cycles. Los Angeles-based Northrop Grumman, forexample, has benefited from a cornucopia of defense dollars, partlyfueled by increased spending on the military since President Bush tookoffice. Keith Glennan, who is the CIO for the IT sector, thinks it'slikely that his IT budget will increase slightly. He's committed toreducing the recurring budget for things such as IT support andincreasing the nonrecurring budget. Projects he'll be focusing oninclude integrating recent acquisitions, such as Litton Industries andNewport News Shipbuilding, onto its SAP platform and doing morebusiness electronically, such as Web-based collaboration withsuppliers.
Work with Your Vendors
When CIOs are able to boost spending, one factor makes it a lot easierto take on a predatory role: receptive vendors. As IT spending hasstalled, the vendor community, which a few years back had no problemsselling large, expensive enterprise packages to CIOs flush with funds,is now cutting deals faster than a Big Three automaker. "Vendors aremore willing to be creative and look at alternative ways of achievingthe same objective," says Flowserve's MacDowell. "They're looking fornew and creative ways to get a bigger piece of the ITwallet."
Noll wholeheartedly agrees. "From a pricing perspective, they'rewilling to do almost whatever's necessary to get the business," hesays. Before, says Noll, the menu was à la carte - companies werecharged separately for software licenses, training and consulting, forexample. "Now we can bundle training, license fees and consulting allin one and hold [the vendors] accountable for the success of theproduct," he says. Noll also notes that his vendors areproviding - free of charge - jump-start programs in which they train hisstaff on how to install and configure an application or system and getit up and running in two months.
Rubin reinforces that there's been a sea change in the technologymarketplace. It's a buy-side economy, he says, in which the buyersdon't have an imperative to upgrade. Rubin sees massive discounting oninitial software licensing fees and deals on hardware and storage, andalso notes that there's a move away from fixed-cost pricing tovariable pricing for goods and services, which he dubs "cell-phoneeconomics." That is, companies can now purchase storage and processingpower by prepaying - or paying by the minute - for example, flexibilitythey didn't have as much of in the past. He cites IBM as an example,which is offering variable pricing on its mainframes - you don't paywhen you're not processing.
Al Case, a senior vice president and analyst at Stamford, Conn.-basedIT consultancy Gartner, adds that companies are also making sureoutsourcing agreements include performance benchmarks. Now, contractsinclude language that says, In X point in time we'll do a formalbenchmark, then revisit the contract if that benchmark isn't met. "Idon't think we're seeing fewer long-term contracts, but morerenegotiation and repricing points, based on service levels and marketconditions," Case says. Rubin views benchmarking in general as key tocutting the best deals with vendors. He throws out a litany ofcategories, including price, cost, performance, labor rates andtransaction rates, which should be looked at whennegotiating.
Ryder's Vital also likes the fact that vendors are ditching thethou-shalt-do-what-we-command approach and are more willing to act aspartners. "Before, vendors came in with the answer," he says. "Nowthey take the time to understand our business." Vital admits he usedto play that role; he joined Ryder six months ago from Accenture(where he worked closely with Ryder).
Even with pliable vendors, however, many CIOs willing to invest ingrowth areas face significant and understandable hurdles - theircompany may be suffering from stagnating revenue and income; thebusiness side (and some IT executives) still feel burned from thezealous IT spending of recent years; and many execs just want to focuson getting the most from the huge investments in ERP systems and thelike that they made in the go-go days.
Is the economy undergoing a gradual recovery? It depends on whatstatistics you believe and what day of the month it is. Whatever yourview, it makes a whole lot of sense to not get caught flat-footed whenit happens. To use Noll's metaphor, there's a time and place forgathering, but at some point you've got to pick up a spear, leave thecave and head out for the big game.