By the time you
read this you are well into your budgets for the year. For others
in various financial year cycles, it is still not too late.
Intels Craig Barrett
says you dont spend your way out of a recession, but emerge
from it by new products and technologies. For a savvy marketer, a
recession is often seen as a godsend a time to make hay while
the sun doesnt shine, because you spend less money for the same
share of voice. Moreover, a smart marketer feels that the products
value gets enhanced as consumers get close to brands that are
getting advertised and hence are visible in a recession.
On the other hand IT
practitioners are presented with a classic dilemma since the
senior management contends that IT expense is too high, though the
IT department tends to think otherwise.
Of course, the battle for funding in such times between the
management and functional heads is not limited to IT alone. Most
good managers will attempt to increase his or her departmental
funding in order to add organisational value. Savvy CIOs should
recognise that recession is a temporary phenomenon, driven by
external factors, and is no reflection of their capabilities or
importance of their function. And they should wisely use this
opportunity to visibly visit the basics of their role,
functions and investments to date.
Alternatively, they can
seek refuge in the oft-used and time-tested technique of wanting
to protect their legacy systems under the rationale of soft-rupee
expenses to preclude any failure or degradation of
business-critical applications so as to avoid the larger
hard-rupee implications of loss of customer or business.
It is quite clear that
there is nothing stylised about the relationship between IT
spending (capital plus operating expenditure) and the economic
slowdown that ought indicate an adverse relationship between the
two. While it is true that in times of a slowdown the overall
capital spends do dwindle, the greater proportion of the capital
items still tend to consist of IT.
This indicates that
infrastructure rollouts and upgrades can be often expected to be
offset by savings made in operating expenditures and discretionary
spending. Ultimately it depends on a complex interplay of forces
among three crucial factors.
First, the particular IT
adoption profile of the company whether it is a
leading-edge adopter, mainstream adopter or conservative adopter
of technology. The more aggressive adopter of technology will show
continued growth in IT-spending as a proportion of revenues, while
enterprises migrating from one type to another could also exhibit
significant increases in spending.
Second, the industry
group the one (to many) to some extent predetermine the
spending ratios, like financial services, companies that have
higher spends in IT than hardware manufacturers, chemical
manufacturers or retailers. For example, an organisation might use
a percentage of the gross sales or a percentage of gross profits.
The caveat to this approach is that while in reality the companies
in an industry segment might have the same basic issues, they also
face unique issues to be resolved. Therefore, a one-size-fits-all
approach is not necessarily a good indicator.
Third, in which an
enterprise is located on the maturity curve of e-enablement
itself. As brick-and-mortar enterprises derive revenues from their
Internet-enabled businesses or have cost savings and benefits
accruing to them, they show higher proclivity to spend. Government
enterprises are good examples of where an interplay of moving from
a conservative adopter of IT to a leading-edge deployment of
technology, coupled with e-governance initiatives, can lead to
increased proportion of IT spending.
managers rationale for IT spends will generally be dictated by
imperatives such as managing and protection of critical
infrastructure (which include investments in business
continuity and disaster recovery) as against the earlier credo of expansion
This more conservative
approach will take the form of cautious equipment purchases and
cannibalisation, re-architecturing around central server and WTS/Citrix
metaframe, cap on head count of staff (including consultants) with
a view to extract more from less, re-centralisation in IT budgets
that can be expected to lead to cost savings and service level
benefits as also reduce hidden costs, deferment in custom
developmental projects and/or major enhancements and adoption of
ASP partner for migration plans whether they be office
applications or non-critical enterprise applications.
The trick is to try and
convert some types of capital costs into monthly expenses and in
the long run reduce TCO while at the same time reducing typical
recurring costs such as travel, training, communications,
consumables and software. Alternatively CIOs can look to passing
some of these recurring costs to the respective user groups on a user-pays-principle
on mutually agreeable basis.
traditional dilemma of what to outsource or not there will be a
trend to continue dependency on external service providers to
render many of the support and service, help desk, network
management and administration and other infrastructure services.
However, these will be still under extreme pressure to demonstrate
net savings to the company on the whole. Further companies will
need to be better (read ruthless) at renegotiating or managing
their deals and reducing multi-sourcing to reduce management
overheads associated with it (often said to add a clear 10-to-20
per cent to the overall ESP costs).
rationalise their outlays, they need to refocus on other areas and
reverse the short shrift they have given to security, business
continuity, web services, and how to reclassify Internet-enabled
initiatives. Not a bad word anymore, but very much a part of a
companys smart business (s.business) strategy.
Security has been the
most neglected component of IT, whether it may be tools,
infrastructure, training or policies. Traditionally, security has
constituted only about 1-to-2 per cent if at all. But this can be
expected to be anywhere up to 10 to even 25 per cent in highly
data intensive, mission critical and front facing enterprises,
especially after 9-to-11. Business continuity and disaster
recovery provide yet another area, which could do with additional
Typical spending has been
between 3 to 4 per cent of the data-centric budget and would
represent spending on resources committed to almost faultless
real-time recovery in the event of any incident. Web services have
not been sufficiently leveraged. There are innovative ways to
utilise smart applications, which are easily configurable around
platform independence and language-neutral web protocols to carry
out collaboration and business-management integration.
Finally, another area of
opportunity is e-business. Once e-innovation becomes part of core
business processes, enterprises will redefine cost categories and
cannibalise other non e-business-related spending Companies will
find it hard to differentiate between an e-business initiative and
an ERP project hitherto owned and budgeted for by the IT
As such there isnt a
single right answer to an organisations level of IT funding.
Rather, the funding level will depend on the organisations IT
goals. If there are no clear IT goals or expectations, the right
level of funding is probably whatever you are currently spending
on the function. So while CIOs can remain bullish about
spending, the rate of spending will certainly be a whole lot
lesser than the previous years.
a positive note it is a known cyclical phenomenon that companies
come back after a recession stronger, leaner and meaner. And this
will inevitably provide the impetus for the next cycle of growth.
Perhaps sometime in 2003.