If you want to save your IT budget, get closer to the business and the customer. That’s the key finding of the recent CXO Media (CIO’s publisher) survey, “IT Spending and Lessons Learned.” The good news is that IT is more closely aligned with business initiatives in today’s tougher economic times than ever before. Executives in our survey indicated that 10 years ago, when the United States last faced a sluggish economy, companies had a greater tendency to reduce the IT budget as a cost savings measure. Today, IT is viewed as a strategic advantage; close to one-quarter (23.5 percent) of the 297 CIO and executive-level respondents said that IT spending should increase during a slowing economy.
“I think that realizing the importance of IT justifies the investment. That means looking at it not as a cost center but as a potential profit center. If you deliver critical information, then the cost is justified. If you don’t make the investments and let infrastructure be a limitation, then making IT cuts is like cutting a marketing budget.”
-Mark Hoffman, CIO, The J.C. Robinson Seed Co., producer and seller of hybrid seed corn, Waterloo, Neb.
1 More Budget Increases than Cuts
Close to half of our respondents said they increased their IT budget in 2001 from the previous year, while 20.9 percent said their budget decreased. The remaining 29.3 percent indicated that their IT budget remained the same. On average, IT budgets increased 12.1 percent. (Bear in mind: For the 2000 budget, CIOs were citing 17 percent increases.) Key factors cited for increased budgets include growth, customer demands, new or upgraded applications, upgrading infrastructure and competitive pressures.
“We’re in health care. Just because the tech stocks aren’t doing well doesn’t mean people aren’t getting sick. But we’ve been squeezed a little because the federal government reduces payments as do insurance companies. We were pressured to reduce our budget a little but not as dramatically as our peers. We didn’t have the big jumps in previous years either.”
-Rick Crabtree, CIO, St. Joseph Healthcare, health-care services provider, Nashua, N.H.
2 Demonstrating Value, Controlling Costs
Executives in our survey indicated that CIOs are under great pressure to prove the value of IT projects and justify spending and as a result are shifting their priorities to projects that have a measurable ROI. When asked how specifically they are reducing IT expenses, they most frequently cited postponing IT projects (40.1 percent), negotiating tougher vendor and contract agreements (38.4 percent), consolidating technology vendors and products (35.7 percent), instituting hiring freezes (26.2 percent), and reducing head counts and IT staff (25.2 percent).
“Right now it appears that the budget will go up next year. It will be flat for operational run rate stuff, but we are looking at a 15 percent increase for projects, things that as we go through the year we will either do or not do?projects like collaborative commerce, e-business and some supply chain. However, we can and will postpone them if we need to.”
-Bill Rogers, VP of IT and e-business, Johnson Controls, automotive systems and facility controls, Milwaukee
3 Differing Spending Philosophies
The majority (61.7 percent) of those surveyed felt that companies should maintain IT spending during a slowing economy, while 24.5 percent said IT spending should increase. Only 13.8 percent said IT spending should decrease in slower economic times. The chief operating officers’ views on IT are very similar to the CIOs’ views, both groups stressing the efficiencies created by IT. The CEOs value IT more from a strategic perspective, citing competitive advantage as a reason to increase IT spending in a slowing economy. The CIOs are most passionate, of course, stressing the need to think long term about IT spending. The CFO is the dark cloud, listing the need to conserve capital and reduce costs to “keep the doors open.”
“The CFO and CEO in our case are impressed by our ability to get things done at a lower cost level. Given that we can do that, they are more amenable to the strategic initiatives. Every year we are asked if we can give [back] a half-million bucks, and we are always able. We have built up credibility with management that we aren’t just spending money haphazardly.”
-William Crowell, CIO, Meredith Corp., media and marketing, Des Moines, Iowa
4 Block that CFO
CFOs were more inclined to reduce IT spending while CIOs, COOs and CEOs were more likely to increase or maintain IT spending in the face of a slowing economy. A greater number of CFOs (26 percent) said IT spending should decrease in tougher economic conditions compared with the views of CIOs (15 percent), CEOs (6 percent) and COOs (6 percent).
“IT should increase if you are spending it in the right areas. Instead of buying the newest laptop, you should put it into a software package that will drive efficiency in other parts of the business.”
-Marc Grove, CIO, AmericasDoctor, pharmaceutical services, Gurnee, Ill.
CXO Media’s online survey was administered from May 21 through June 7, 2001. CIOs, VPs and directors of IT were selected from CIO’s circulation file and invited by e-mail to take the survey. In addition, names of CEOs, CFOs and COOs were chosen from Darwin magazine’s (CIO’s sister publication) circulation file and invited to participate. The results shown here are based on 297 responses to our survey.