How to Fight the IT Budget Squeeze

 
 
By Bob Suh  |  Posted 2008-05-02 Email Print this article Print
 
 
 
 
 
 
 

According to Accenture Chief Technology Strategist Bob Suh, there's no need to take IT budget cutbacks lying down: There are a number of useful arguments to give the CFO and CEO. A survey by Accenture provided the insight that will help CIOs fight back against the budget squeeze.

For those CIOs who are in the midst of negotiating their budgets or who feel they are being squeezed by CEOs looking to cut IT costs, the data reported in Accenture's second Global IT Performance Benchmark research study may help them fight back.

Many of the findings in Accenture's survey of nearly 300 Global 2000-equivalent enterprises can be used by CIOs to state their case for their organizations' continued investment in IT. CEOs need to get real about investing to catch up, and CIOs can help them justify this decision.

The survey provides CIOs with the following eight "snappy comebacks" they may want to use when going to war for the future of their IT budgets.

Comeback #1: "Our customers are last in any line extending out the IT door."

According to the Accenture research, customer-facing systems were found to be among the lowest-scoring and the poorest-performing. In contrast, financial systems have scored the highest. Cutting budgets now would hurt the customer more than the chief financial officer in terms of IT support.

While CIOs say they are spending approximately 28 percent of their application budgets on customer-facing applications, this is meeting less than half of the technical and business needs of their organizations. Those businesses defined as "High Performers"-those that allocate the same proportion to customer-facing applications-have invested in new technologies and in integrating customer applications that have met 90 percent of their business needs.

Comeback #2: "Cutting the fat from today's already-lean IT budgets cannot be done easily."

This is similar to dieting. The first 10 pounds are the easiest to lose, while the last 10 are the hardest. Companies have been pulling all the levers since 2001: offshore, automation, metrics. Reductions today would be about making tradeoffs over who gets refreshed and who doesn't.

The 2007 study showed that, compared with 2005, the overall allocation of discretionary and nondiscretionary spending has barely budged. The study also shows that as an organization embarks on new technology investments, it should expect to spend more of its time on IT operations because its optimized IT environment has been disturbed. While this may look like a step backward to IT execution leaders, High Performer companies view this as a necessary step toward business innovation.

Comeback #3: "Potential hires will laugh at our technology."

A time warp presently seems to exist between the use of technology at work and outside work. The study shows that, for the first time, enterprise technology has fallen behind consumer technology. Companies once led home technology such as voice mail and e-mail. Now, the best technology is used at home first and companies are struggling to keep up.

Comeback #4: "Consumers expect more and are savvier than ever before. If we don't provide it, someone else will, and our customers will vote with their mouse clicks."

Accenture's research data suggests that companies are less than halfway from where they think they could or should be, in terms of leveraging online interactions with customers, employees and suppliers.

Comeback #5: "The people responsible for maintaining our legacy system are headed toward retirement."

The research shows that the oldest modules of front-office systems driving profitability are among the oldest in an organization's portfolio. They average over six years old, with some surviving code that was written in the 1970s. They have survived well past their expected lifespan.

This would suggest that migration is near. Half of the study's participants are conservatively or intentionally holding their course on enterprise application upgrades. But the other half is looking at such alternatives as SOA (service-oriented architecture)-based applications (home-grown or industry-created), as well as on-demand applications and business process outsourcing. Regarding their sales and marketing and customer services applications, 57 percent and 51 percent, respectively, of High Performers say they will migrate to SOA-based applications.

Comeback #6: "It's all been about the Sarbanes-Oxley Act, and we've been forced to focus on SarbOx at the expense of customer-facing systems."

The study shows that a majority of investment has been in the back office because of the restrictions forced upon businesses by compliance requirements. According to the survey, 36 percent of interfaces in organizations are connecting back-office applications with legacy systems; only 15 percent are connecting applications with customers. High Performance companies do better: 25 percent of them say that their interfaces are connecting customer-facing applications. 

Comeback #7: "Examine our history of IT investment."

You've managed to invest in the water treatment and pipes, and now you're saying you want to hold off on buying the faucets and cups? Companies are realizing that it's too late to turn back (or cut back). For example, it's been shown that nearly 50 percent of organizations have committed to business intelligence software, but they are still not getting the data they need. They must continue to invest to get the granular information that is missing to those who need it.

Overall, there is a significant gap of 51 percent between the basic level of analytic functionality available among participating organizations and the level of sophistication and integration of information management to which they aspire. Only half of CIOs in Asia and Europe claim they have access to very granular customer information. Only 36 percent of CIOs in North America concur.

Comeback #8: "We need to stop looking at our IT investments the way the airline companies in America view theirs."

The average American airline fleet, for example, is much older than the aircraft owned by most of their European and Asian counterparts. It is as if the pilots who originally flew 747s and MD-11s in the 1970s were still the only ones who know how to work the technology. We're seeing the same situation in IT now.

And, just as passengers are starting to base their buying decisions on the types and age of aircraft they travel in, so will our clients and employees. For example, CIOs in Asia claimed that an average of 28 percent of their customer interactions occur online. Contrast this with 29 percent in Europe and 19 percent in North America. Asian CIOs surveyed said they believe they can achieve over 53 percent of customer interactions online in the future. Only 47 percent and 45 percent of their European and North American counterparts, respectively, said they believe this about their companies.  

 Bob Suh is Accenture's chief technology strategist.  He can be reached at bob.suh@accenture.com.

 
 
 
 
Bob Suh is Accenture's Chief Technology Strategist. He can be reached at bob.suh@accenture.com.
 
 
 
 
 
 
 

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