Q&A: IDC Forecast for Management 2009

Since 1993, IDC’s annual Forecast for Management Survey has provided senior IT executives with practical research into the attitudes and intentions for use of IT in enterprises throughout Australia and New Zealand.

The survey presents Australian CIOs with an excellent way to keep in touch with the industry, offering historical data which helps them to benchmark where they are in terms of the percentage of company budget spent on IT, as well as to see if they have the same priorities and pain points as other CIOs. This year’s survey collected responses from around 360 C-level executives in Australia and New Zealand.

On the eve of the release of this year’s Forecast for Management (FFM) report, CIO spoke to Melissa Martin, senior market analyst with IDC Australia and one of the principal authors of the this year’s report. It is the second year that Martin, who specialises in analysing vertical markets, collated the results and also marks the first time she has been able to apply her expertise in the area of verticals to the final report.

Melissa, IDC has been doing the Forecast for Management Survey for over 15 years, and this is your second year working on the research. What, if anything, was different about this year’s survey?

We generally do the survey around February to March every year, but because of the economic crisis everyone’s budgets were awry and no one quite knew what they were doing, so we put off asking questions until March through May. We thought people might have a better handle on how the recession was impacting their particular business by then -- at least from an IT spending perspective -- and I think that came through in the results, too.

Also, because I specialise in vertical industries, this year we sliced and diced the data by the 12 vertical markets that IDC covers and presented the report in that way. That’s a new feature that I think provides more relevance and resonance to the CIOs who read it, because they can see the numbers right down to their industry level instead of just a general ANZ level.

And how about the results? Did this year’s results hold any surprises, especially in light of the global financial crisis?

Generally you see a clear trend and a view of the market that makes total sense. But because of the economic turmoil that’s going on I think everyone’s in a state of flux -- and that came across in the results. There were a lot of odd little things that I looked at and scratched my head and thought hmm. . . this is an interesting year. So I think the biggest surprise is that the results matched the state of flux of the economy.

Let’s talk about the top CIO challenges. What were the principal trends you saw there?

Three main themes emerged this year’s results. First, CIOs are controlling their spending and reducing their costs -- that’s an absolute no-brainer.

The single most surprising result, however, was the increased focus on human capital management. I initially thought that was really weird, because unemployment is high and everyone is scrambling around for a job. But when you think about it, that actually makes a lot of sense. People are keeping the best staff they have and, if business is quiet, they’re retaining and retraining staff so that when the economic wave comes back to the shore with a crash, the company will be ready to go. Companies are also looking at who is unemployed and cherry-picking the top minds out there. What’s more, there’s a big focus on rewarding employees who have stuck with you during the hard times.

The most dramatic fall that we saw in the survey was with maintenance fees. Spending on maintenance fees has gone down in the region of 20-25%.

I think that maintenance spending has taken a significant hit for several reasons -- the global financial crisis, more pressure on IT budgets, etc, so CIOs are looking at what maintenance contracts they can renegotiate at a cheaper rate or even cancel if the technology is reaching the end of its lifecycle. And of course some CIOs are switching to alternative business models such as SaaS, or free Web-based software like Google Apps, or open source software, and bypassing the conventional maintenance fee structure.

Another thing that came out in the survey this year is that hardware and software refreshes are being stretched as long as possible. People are happy to maintain the status quo until they have to get that new software or hardware they can’t live without.

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There was also a drop in outsourcing, although not a huge one. What is the significance of that decline?

Generally IDC has been saying that people tend to look to outsourced services to save money, or they renegotiate their outsourcing contracts to save money, but I think people are looking so closely at the bottom line to cut costs and reduce spending that they are bringing some things back in-house and reducing their outsourcing that way.

Also, the outsourcing market has had a lot of shake-ups this year with the scandals at Wipro and Satyam, so I think everyone looked at their outsourcing and maybe cut back a little bit. It hasn’t fallen dramatically, but it has fallen.

In this year’s survey you asked some specific questions relating to the global financial crisis. What did the data tell you about how organisations responded to the GFC?

Interestingly, when we asked about business outlook and whether people were positive or negative about the next six months, about 40% said they were positive about the business outlook for their company now -- and that went up to 60% for their outlook in six months time. I would’ve thought at the point when we did the survey it would have been lower, so that was a surprise. And only about 5% were negative about their business prospects for the coming year.

We also asked what people’s main point of action was going to be in response to the crisis and 75.6% said they would cut or freeze external spending, while 19.1% said they would lay off staff and cut their IT expenses. I would have expected the cut in IT staff would be higher, but I was pleased it was not.

And when we asked about specific areas for budget cuts, not surprisingly about 45% said they would make cuts on the admin/operations side. But only about 11% said they’d cut their budgets on the IT side of things, so that’s also encouraging.

You’re a specialist in vertical markets, and IDC broke this year’s FFM data into vertical markets. Can you offer any insight into which market areas are riding out the GFC better than others?

Not surprisingly banking, finance and insurance -- which are perhaps the cause of the crisis -- are riding it out very well. They’re a huge vertical industry in terms of IT spending in Australia, so that is not a big surprise.

The construction industry is another vertical that I see having big growth in Australia. Construction is doing well because the government has thrown so much its way in terms of stimulus spending and infrastructure upgrade projects. Even the first home buyers loan and green building initiatives are coming into play to give construction a boost.

Business services, which includes all of your retail companies, are also getting ahead thanks to the way the government buoyed the economy with its stimulus package. Spending is now getting back on track.

Government is also likely to grow, because it is taking on a couple of new roles, such as a corporate watchdog, stimulating the economy and making sure the money is going to the right places. They’ve also got to communicate better with the citizens, so we’re going to see a lot more information sharing between government and citizens, especially in relation to how the economy is going. And of course e-health is another area that government is going to be pushing money into. I’m expecting to see great things in e-health in the next couple of years.

A big surprise was the sizeable shift in who CIOs report to. Last year only 5% of CIOs said they reported to the CFO. This year that figure has jumped to 15%. What does that say about how companies undertook restructuring to deal with the economic crisis?

Before, IT leaders were in charge of getting the return on investment for IT expenditures. Now we’re seeing both business leaders and IT leaders in charge of making technology buying decisions, as well as being in charge of the return on investment side of things. What we’re seeing is the ‘reduce costs and control spending’ mindset coming to the fore. CFOs are keeping a watch on everything.

As you point out in the report, if there’s any silver lining to the GFC it is that the business has a renewed sense of IT as source of competitive advantage. Do you have sense of what companies are doing to drive IT as a source of competitive advantage or the strategies they’re using to sustain growth in the future?

Before the recession it was still the CIO’s job to make sure the organisation was ready to take advantage of opportunities, but it was more on a voluntary basis that they were looking to achieve business transformation. Now, thanks to the economic crisis, they’re facing business transformation whether they like it or not.

Speaking as a verticals analyst, my advice to any company that might be struggling in the market is to look at the way they’re doing business. It may be they can use competitive strengths that they have in some areas already -- like a strong sales force or a good marketing strategy or product development team -- and perhaps apply them to another vertical market or another industry. That might open up a new industry of opportunity to them or another source of revenue.

Better alignment with the business is one of the perennial goals of CIOs everywhere. Anecdotally at least, it seems as if IT and the business have emerged from the GFC more closely aligned than ever, perhaps because they’ve been through this rough patch together. Do you think this difficult economy has helped restore confidence in IT?

I think aligning IT with the business is more important than ever, because as we saw with the change in reporting from CEO to CFO, business leaders and IT leaders are both now responsible for technology purchases and getting the correct return on investment for IT investments.

I also think now is the time to look at all these new technology opportunities, like cloud or SaaS or virtualisation, and maybe start taking them more seriously and rolling them out quicker. That could certainly help organisations get into a position to take off and go when that economic waves crashes back on the shore.

It will be a good thing when we get through the crisis. I think it has been a kick up the pants for a lot of businesses that were perhaps a bit too complacent. We’ve been saying, ‘look at the crisis as an opportunity to review the way you do business and make changes’.

Copyright © 2009 IDG Communications, Inc.

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