SAN FRANCISCO — Now that most IT budgets are growing again, CIOs are going to have to focus on delivering the most innovative services that contribute to robust corporate business growth, according to a Gartner analyst.
IT budgets in most industries will grow 2.5 percent to 3 percent in 2005, according to Mark McDonald, a vice president at Gartner Group Inc. who spoke Monday at the Gartner Symposium/ITxpo here.
But for some companies in media and entertainment or transportation and logistics, budgets will increase by as much as 7 percent this year, McDonald said.
The companies with the most aggressive growth goals will be those that are willing to increase IT spending even faster than operating budgets, he said. “These are the companies that are planning on growing faster than the market,” he said.
He estimated that up to 19 percent will grow the IT budget faster than the operating budget, while 64 percent will increase IT and operating budgets at the same rate. The remainder, he said, are decreasing the IT budget while increasing the operating budget.
In order for CIOs to demonstrate a record for success over the next three years, they must “deliver more value than what is available in the market, or face commoditization,” McDonald said.
Gartners research means that IT should be contributing in three key areas: improving business processes, minimizing security breaches and disruptions, and helping to reduce enterprisewide costs and operating budgets.
CIOs need to focus on improving, integrating and innovating business processes that help the enterprise reduce costs and increase revenue, McDonald said.
They need to increase the quality and use of intelligence in processes, products and services to help the enterprise achieve business goals. Then they have to keep their expenditures in line with business expectations, he added.
In short, he said, IT has to be an active contributor to business success, not a service or cost center that sits in the background.
CIOs who dont focus on these issues or who fail to deliver on these general goals cant expect to enjoy long careers with their current employer, McDonald said. “The tenure of CIOs who cannot provide this is about 18 months,” he said.
But they also should expect to achieve these improvements without huge upfront investments in IT, McDonald said. “The days of getting of significant cash outlays ahead of operating expenditures are gone forever,” he said.
One sure way of getting positive recognition of IT is to develop and automate business processes that “help the business differentiate itself” from its competitors or that drive out cost from essential business processes, McDonald said.
The CIO has to think in terms of bringing ITs goals in line with the CEOs business goals. When IT finds innovative ways to improve business process performance, the enterprise often will generate growth that exceeds market growth rates and that makes IT a hero in the eyes of the CEO, he said.
Advanced technology alone wont help a company improve its business performance. It has to be used in a novel way that solves problems, McDonald said. For example, a liquor distributor put RFID (radio-frequency identification) tags on every bottle in every case of wine and spirits that came into its shops.
It also put cameras by the doorways. If it saw that employees were walking off with bottles or cases of liquor, it didnt necessarily fire or discipline them; it just docked their pay for the price of the goods taken, McDonald said. This significantly reduced what is called inventory “shrink” in the industry, he said.
A large golf-equipment company increased its revenue by $100 million by using a wireless order-transmission process to reduce the amount of time necessary to replenish in-store inventory, McDonald said.
This also reduced the cost of “hidden inventory” that was languishing in the trunks of the sales forces cars. The sales staff used to keep extra shoes in their cars to rapidly replenish pro shop stocks, rather than wait for the company to fulfill orders from the warehouse, McDonald said.
These are examples of how IT can deliver technology that contributes directly to the bottom line, he said.
Pharmaceutical company GlaxoSmithKline Plc. found that it was spending four IT dollars to generate one dollar of business-improvement impact, McDonald said. By improving the companys business processes, the IT department shifted that ratio to spending one IT dollar to generate six dollars in business improvement, he said.
The opportunities for IT to have an impact on business processes are always there for any IT department that gets involved in business-process improvement, he said.
But he said the key for any successful IT department is to not to be shy about telling the CEO about the value that IT is delivering to the business.