Research Shows CIOs Are Lowering Expectations for the
Remainder of the Year

August 4, 2008

By Bob Violino, Techweb

The sluggish economy clearly is having an impact on IT spending. Many CIOs are reconsidering large–scale projects and capital investments and are generally putting budget items to tougher scrutiny than usual. For IT chiefs, it's more important than ever to demonstrate the business value of technology and to show quick return on IT investments to senior executives.

New research data indicates that the mood has darkened just in the past few months. Results of a July survey of more than 600 business technology executives by InformationWeek show that 40% have decreased IT spending in the past quarter compared with their original 2008 budget forecasts. And their outlook about the overall economy has soured as well. More than 40% of respondents think the U.S. is in a recession now, compared with 32% in a similar survey conducted in March.

Other data reflect the concerns, too. A Gartner survey of 1,011 CIOs worldwide conducted in the first quarter of the year showed that roughly one–quarter expected a decline in budgets. As economic news worsened in recent months—led by rising energy costs and the weak U.S. dollar—belts are getting tighter for many IT organizations.

"Since the [first-quarter] survey we have seen increased scrutiny of IT budgets," says Mark McDonald, group vice president and head of research for Gartner Executive Programs. He says some reviews are predictable as "historically IT budgets come under pressure in the year following economic recession." But there's also real concern about the impact on growth and innovation.

Business Results

CIOs who want to maintain or even increase their IT spending in an economic slowdown must focus on business results and the impact of IT. "They [must] report business–impact metrics; what is the change in the business that is possible through IT?" according to McDonald.

Successful CIOs also measure the potential business benefit their departments are producing. "Think of it as the sum of the business cases for the projects they complete," McDonald says. "This is a measure of the value potential/value production of IT."

What matters is whether IT can deliver results, not fund new activities. That means they "are focusing on completing the projects that will make a difference now to operations," and others, rather than just completing a list of projects, McDonald says.

Gartner and others say there are proven ways to stay ahead of the economic curve. First, McDonald suggests speaking about the IT budget as "strategic spending" or investing. "You are investing and that requires a return and a focus on benefits realization."

Greg Meyers, CIO Americas at Novartis Consumer Health (NCH), a division of Swiss pharmaceuticals company Novartis, says his industry has continued to see strong demand for its products this year, so he has not been affected by the economy as much as other businesses.

Nevertheless, the IT department at NCH has shifted its focus to essential projects and technologies that help automate processes, increase efficiencies and decrease costs, Meyers says. The pace of hiring at the company has slowed a bit and "I'm seeing less demand for speculative projects that don't have nearly immediate returns," he says. "We're a little more risk–averse now."

The types of technologies the company is deploying include workflow management, document management, business intelligence and customer relationship management software. Put on the back burner for now are large–scale, service–oriented architecture initiatives.

Toromont Industries Ltd., a Toronto–based company that sells and rents construction equipment and makes compression systems, also is taking a more cautious approach to IT spending.

With economic indicators suggesting "a softening economy," CIO Mike Cuddy is "beginning to adjust the portfolio of IT activities to prepare for a potential adjustment in game plan."

That includes a shift to more short–term ROI deployments, Cuddy says. "The balance between long–term and short–term projects gets adjusted, with a greater focus on investments that will begin generating benefits more quickly," he says.

There's also a push for IT investments that can directly improve expense management. For example, given the increased cost of travel, Toromont is deploying mobile asset–tracking systems to better optimize service vehicle travel and maintenance costs, as well as videoconferencing to reduce employee travel.

The back–to–basics mindset is likely to become increasingly common unless IT organizations find some economic bright spots on the horizon.