The New Economics of IT, Part III: It's Bleak Street for Hardest Hit IT Departments

It may be impossible to find any CIO who is not dealing in some way with the impact of the current economic crisis. However, the greatest challenges surely are being faced by those CIOs who have been most severely impacted through budget cuts.

More than a third of Australian CIOs responding to the CIO Executive Council survey The New Economics of IT report that their budget is decreasing. Examining their responses and decisions reveals a gloomy picture of life at the IT frontline as the emphasis shifts from growth to survival.

See related slideshow: The New Economics of IT, Part III | Aussie IT Battlers Doing Better Than US Counterparts in The New Economics of IT, Part IV
The budget reductions range from -3% for a state government CIO to -35% for a CIO in the finance/banking sector. The average budget cut among all who report reductions is -13%.

As would be expected, CIOs faced with such cuts have gone back to the drawing board this year, with 93% saying they were reviewing IT projects to save cash and 87% reassessing their 2009 budget plan. Four out of five are currently operating under a contingency plan, and 7% more intend to implement one.

The lower budgets have pretty much closed the shopping trolley for these CIOs. Four out of five are decreasing their spending on hardware this year, and 73% are cutting back on software expenditure. Nearly half are reducing their spend on outsourced IT services, and two out of five plan to reduce telecommunications spending.

Faced with less money, the hardest hit CIOs have also been unable to shelter their staff, as 47% are planning to decrease IT compensation. In fact this group represents 89% of all Australian CIOs who indicate they will be reducing compensation costs.

Only 26% are reducing headcount, but 93% of this group have implemented a hiring freeze or plan to do so soon. Two out of three are reducing the money spent on staff training and four out of five are restricting IT travel.

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Outside suppliers will be particularly hard hit. In addition to the 47% who intend to reduce spending on outsourced services, 86% plan to reduce spending on IT contractors and consultants. Vendors can expect some tough negotiations, as well, as 93% of the CIOs have either started renegotiating vendor contracts or will do so in the coming months.

And if all of that isn’t enough pressure on these CIOs, they are also coming under much more intense scrutiny. In one of the few instances where the response to a survey question was unanimous, 100% of the CIOs who have had budget cuts said that IT purchase decisions are undergoing closer scrutiny by other business executives within the organisation.

Perhaps most telling was this group’s response to a question asking their primary focus for their investments in the next 12 months. 47% said their chief goal was to lower the operating cost of IT, and another 33% said their focus was to enable process innovation. One out of five said their priority was to manage IT infrastructure more efficiently.

And not one of the CIOs whose budgets were cut said their primary focus was to create top line revenue growth.

The survey The New Economics of IT was conducted by the Australian CIO Executive Council in February and March 2009. The CIO Executive Council is an organisation which enables members to be more successful by facilitating the sharing of knowledge and creating content and programs around issues crucial to advancement of CIOs and the ICT sector. It is owned by IDG Communications, the publishers of this Web site.

Copyright © 2009 IDG Communications, Inc.

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