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Forecast 2013: Building a better IT budget

"Containing costs was cited as the far-and-away No. 1 business priority among the 334 IT executives
  • Mary Brandel (Computerworld (US))
  • 24 September, 2012 14:22

Eric Lindgren, CIO at PerkinElmer, will spend the next 12 months like many of his peers: hunting for cost savings that can be re-allocated to high-impact technology initiatives, such as mobility and analytics. As part of this effort, his IT group will continue to streamline the company's application portfolio, move last year's acquisitions onto its corporate-standard ERP platform and shift some fixed investments into more variable models via a private cloud.

Lindgren also designed his budget so he can either curtail or expand his investments depending on how the global economy performs. "We're going into the year with contingency plans so that if [the economy] worsens or performs better than we expected, we can react quickly," says Lindgren.

Throughout the U.S., IT organizations are facing similar situations. According to Computerworld's Forecast 2013 survey, there is a sense of cautious optimism as IT organizations move into the new budget year. The percentage of respondents who said they're seeing an increase in their IT budgets was higher in this year's survey than it was last year: 43%, versus 36% last year. And 64% reported that they plan to make a major IT purchase or upgrade in the next 12 months, up from 60% last year (see charts, below).

More are also taking Lindgren's flexible approach to budgeting: They plan to track economic indicators and adjust their spending levels accordingly, says Andrew Horne, managing director at The Corporate Executive Board. In a recent survey, the business advisory firm found that budgets were expected to rise by just 1.5% to 2%, but Horne believes respondents might expand their spending beyond what they initially report, as they did last year. "People are very cautious as they do their planning, but if they see company or economic performance doing better, they're becoming more agile about being able to invest more," he says. "More people are looking at rolling budget scenarios, to formally embed a degree of flexibility."

Clearly, lessons from the recession are still top of mind: "Containing costs" was cited as the far-and-away No. 1 business priority among the 334 IT executives who participated in Computerworld's Forecast 2013 survey, and "economic pressure" was the top management challenge. And, as in last year's survey, when respondents were asked to name the single most important technology project they would undertake in the coming year, the top two responses were virtualization and the Cloud, both of which promise to reduce operating costs.

"All of us are facing the same challenge," says Joe Mahaffee, executive vice president and chief information security officer at Booz Allen Hamilton. "We've all got infrastructure we need to manage, increasing cost pressures and uncertainty in the market, but we're all focused on our growth agendas, whatever they may be. We've got to leverage technology in a more effective and efficient manner to allow that to happen."

Fiscal Policy

IT Must Keep a Grip on Tech Spending in 2013

Thanks to trends like cloud computing, the consumerization of IT and the bring-your-own-device (BYOD) movement, a company's IT budget and its technology expenditures aren't always one and the same. In many cases, technology decisions and purchases -- particularly those involving mobile apps and the cloud -- are made by individuals or business units, not by IT.

"If you look at an enterprise's total [technology expenditure], what percent does the IT budget represent today?" asks Forrester Research analyst Craig Symons. "I would submit that many organizations would not be able to answer that, because they have no idea what the business is spending on technology outside of IT."

What percentage of your total enterprise IT expenditures occur OUTSIDE of the corporate IT budget?

  • 0%-10%: 49%
  • 11%-20%: 20%
  • 21%-40%: 17%
  • 41%-100%: 15%

Source: Computerworld Forecast survey; base: 334 IT executive respondents; June 2012

In Computerworld's Forecast survey, almost half of the respondents said that 10% or less of total technology spending occurred outside of the IT budget. But Andrew Horne, managing director at The Corporate Executive Board, agrees that non-IT technology spending is a burgeoning -- and not yet quantified -- trend. "In the past, it would lead to shadow IT organizations, which were wasteful and insecure," he says. "But today, it's buying services from the cloud," which doesn't require the hiring of additional IT personnel.

Horne says the trend can be a healthy one, as long as the technology purchase is contained within one business area and doesn't cut across other processes or produce data that other functions could benefit from. Otherwise, he says, IT would need to get involved and integrate the new system.

What often happens, says Symons, is that the sales organization, for example, purchases a Salesforce.com tool and thousands of tablets and IT doesn't hear about it for months -- and then only when the sales team discovers that the application would be more useful if it were tied to a corporate database.

This trend is also increasing the need for security controls. In a recent Forrester survey, respondents named risk management as their top IT priority for the coming year. IT professionals are concerned that corporate data is put at risk when employees, for example, use a cloud offering like Dropbox to get around the email system's limitations on attachment size. And with BYOD initiatives, Symons says that reductions in enterprise spending on mobile devices are offset by the need to invest in remote management systems and adopt corporate security policies. "All of a sudden, corporate data is sitting on a folder in the cloud," he says. "It creates all sorts of issues."

- Mary Brandel

Strategic Investments

Booz Allen has increased its technology expenditures in the past two or three years, but its budget will be flat in the next 12 months, Mahaffee says. However, a look at the consulting firm's 2013 priorities reveals seven strategic initiatives that serve the dual purpose of growing the business while managing costs -- or, as Mahaffee puts it, "getting more for less."

The initiatives include migrating to the cloud, expanding mobility capabilities, consolidating assets and applications, optimizing IT services, rolling out a unified communications framework, improving security and continuing virtualization efforts.

On the cost-savings side, Mahaffee says Booz Allen is formalizing its bring-your-own-device (BYOD) initiative by implementing a mobile data management system to centralize oversight of employees' mobile devices -- a move designed to improve productivity, reduce risk and lower costs. The firm is still deciding what data to move to the cloud, but Mahaffee says any savings will be reinvested into technologies that support high-growth initiatives. "That's our over-arching philosophy," he says.

In Computerworld's survey, half of the respondents said they planned to invest in cloud computing, and more than one-third said that was one of the most important technology investments they planned to make. And according to Gartner, there will be growing demand for public cloud services: The research firm expects that market to grow by 19%, to $109 billion this year and then soar to $207 billion by 2016.

On the growth side, Booz Allen will extend mobile capabilities to its cybersecurity professionals and clients so they can remotely access forensics, analytics, intelligence, network monitoring and training tools via the firm's newly launched Cyber Solutions Network, which connects Booz Allen's many cyber labs, centers and stations. The analytics tools will help clients mine their data to discover insights and make predictions around fraud, cybercrime and other adversarial events.

In the past, if a Booz Allen consultant wasn't sitting in close proximity to one of the firm's centers, he would have had difficulty gaining full access to those tools and resources, Mahaffee says. Additionally, clients can quickly ramp up their access to the consultancy's expertise and resources on an as-needed basis when security issues arise. "That's the way a lot of clients are buying these days," he says. "They can't afford a standing workforce waiting for something to happen."

All Eyes on Mobility

Booz Allen has lots of company when it comes to mobility: Half of the respondents to Computerworld's survey said they planned to purchase laptops or netbooks in the next 12 months, and 43% said they planned to invest in mobile devices. In the Corporate Executive Board survey, a majority of respondents said they were already investing in mobile, and more than one-third said they planned to increase their spending on mobile technology. "The absolute amount of spending is still relatively low, but it will increase as companies see new opportunities on the customer or supply side for using mobility to improve productivity or engage with customers," Horne says.

Western & Southern Financial Group is one of those companies. In the past several months, it has reorganized its IT unit to devote more resources to emerging technologies -- mobility and social media in particular. "A financial services professional presenting with a tablet that he can hand to you is more impressive than setting up a laptop and waiting 30 seconds for it to start up," says Doug Ross, vice president and CTO at Western & Southern. The company has a cross-functional team that dedicates chunks of time each week to research emerging technologies, he says. "We're trying to take an agile approach that dictates involvement from business people to deliver the best experience," he says.

PerkinElmer also has a mobility initiative. Later this year, says Lindgren, the company will outfit its sales and service reps with third-party mobile customer analytics applications that will run on company-issued Android devices and employee-owned iPhones. "When they're going to visit a customer, they can pull up revenue and other information on the customer, like what products they've been purchasing and how their business has been changing," he says.

On the cost-cutting side, PerkinElmer is looking toward analytics tools that will give managers better visibility into global spending. In the past year, Lindgren says, the company rolled out a system that enabled managers to study expenditures and cut costs by reducing the number of vendors they use. "They get a better idea of spending patterns, down to the invoice level," Lindgren says. The company also wants to consolidate the private cloud environments of four software companies it acquired last year, moving them all into one center.

Which of these are business priorities for your company in the next 12 months?

  • Containing costs 59%
  • Growing revenue 41%

  • Optimizing existing investments 36%

  • Accelerating business process and agility 35%

  • Growing market share 34%

  • Enhancing competitiveness 33%

  • Getting better connected with customers 31%

  • Improving collaboration with business 22%

  • Attracting new talent 18%

Source: Computerworld Forecast survey; base: 334 IT executive respondents; June 2012

Lindgren's goal is to spend less each year on pure maintenance and "keep-the-lights-on" activities and free up dollars to invest in growth areas. Some of this is happening naturally, he says, as commodity prices go down and the company's need to spend on ERP declines as it moves to a standardized platform. "As we achieve cost savings, we can invest in new technologies and offset the budget increases," Lindgren says.

Changes to the Business Case

According to Horne, this is the direction in which IT spending is moving: away from core infrastructure, such as ERP and customer relationship management (CRM) systems, and toward information-driven projects, including customer-facing systems (social media, marketing and Web applications), business intelligence (BI) and analytics, and collaboration. "Even if total spending is fixed, over time, we're seeing it move from enabling processes to enabling knowledge workers," Horne says.

Forrester Research analyst Craig Symons also sees spending heading in that direction; he cites mobile apps, mobile middleware, BI and customer analytics as major investment categories.

Information-driven initiatives usually cost less than their infrastructure-based counterparts, require less up-front commitment and can be completed more quickly, says Horne. With these types of projects in their portfolios, companies can be more agile about their spending plans -- but payback is more difficult to measure, he notes.

"Traditionally, it's 'How much more cheaply can we do this process?' or 'Can we reduce head count?' " he says. "But if you're giving someone better analytical tools or enabling them to collaborate better or work better on the road, the benefits are clear, but they're harder to measure." The business case is often wrapped around making the workforce more productive and able to produce more value through better decisions and more collaboration, he says.

Squeeze and Spend

At Western & Southern, however, Ross is finding the current economic climate to be an easier one in which to make the business case for two multiyear projects that are more process-oriented than information-oriented: an enterprise content management system and a unified communications system, both of which will replace existing systems that have reached end-of-life status. "There's a little bit more openness to embark on these larger projects," Ross says. "I think they could have been justified even in the darkest days of 2008 and 2009, but we would have gone through more hoops."

While the unified communications system will reduce costs over time, it will require a significant change management effort, Ross says. The content management system will result in significant cost savings and improve cycle time, because it will streamline core business processes, impacting about 80% of the company, he says. It will also improve the customer experience as transactions and information move online. "Our initial look says it could be quite transformative and beneficial to the entire company," Ross says.

Financially, these endeavors have been made possible by a 2% increase in the IT budget for 2013, and by a significant reduction in capital expenditures over the past few years, thanks to virtualization, a reduced data center footprint, decreases in hardware prices and heavy use of software-as-a-service (SaaS) applications. Ironically, Ross says, operational spending on SaaS offerings has risen so dramatically of late that in the coming year he will focus on reducing costs by streamlining Western & Southern's SaaS portfolio, which consists of more than 100 applications.

Some of these applications are only available in SaaS form, but Ross says there are opportunities to, for example, whittle down the 12 to 15 CRM applications in use. Even though these systems are tightly aligned to specialized financial services that the company offers, he says, "if we did a careful analysis of the features and functions, we'd see a heavy overlap. Maybe we can get away with just a couple or a centralized CRM system that is tailored for each business unit."

Time for Rationalization

Portfolio rationalization is an activity that many CIOs will undertake next year, says Alan Guibord, founder of The Advisory Council. "Economic cycles are getting shorter, and decision cycles are getting shorter," he says. "Most clients are saying, 'How do we simplify things and create an infrastructure that can be more reactive to the needs of users? What can we condense, consolidate and throw away? What do we outsource, and what do we keep in-house?' "

In many cases, he says, companies are moving to a more variable cost structure, in which they bring in specific expertise when they need it and get rid of it when they don't. "No one is opening up their pockets to spend more money -- they have the pocket of money and need to adjust spending to a more realistic model," says Guibord.

This means taking a holistic view -- understanding the business strategy, identifying the initiatives that are tied to that strategy and determining which pieces of the IT portfolio support those initiatives. Once you identify the core competencies needed to fulfill those initiatives, you can align your resources accordingly and find more variable ways to fulfill your other areas of needed expertise, he says.

In the end, whether you think 2013 will be the year of the cloud, the year of mobility, the year of analytics or the year of security, this much is clear: IT shops can't jump on any technology bandwagon that comes along without reviewing its ability to foster growth, and they have to continually look for ways to cut costs.

"We can't afford, even in tough times, not to invest in technology that supports the business -- that's who we are," Mahaffee says. "So we need to make smart choices that allow us to invest where the growth opportunities are and make sure the infrastructure is tuned to enable them."

Next: Test-driving top technologies

Healthcare IT

Outliers Move Beyond EHR and the Stimulus

Healthcare companies have operated in their own tech-spending ecosystem since the government launched its stimulus program, which gives providers incentives to improve patient safety and quality of care.

While much of the spending has gone toward clinical information systems and electronic health record (EHR) technology, some healthcare providers are focusing on other areas of IT. Vanguard Health Systems, for example, has embraced the bring-your-own-device movement. And if Vanguard senior vice president and CIO Scott Blanchette, had his way, the company would also be moving toward cloud-based computing models.

Blanchette admits that his advocacy for the cloud and BYOD makes him an outlier in the world of healthcare IT. "There is a wave of efficiency helping other sectors not only compete but succeed," he says. "We've got to find ways to be efficient and deliver a better experience that's also compliant with regulations."

Blanchette has worked with internal auditors and privacy experts to set up a BYOD program that includes support for tablets, smartphones and -- this year -- laptops. "There are solutions that allow me to publish apps without them being on the device," he says. "They're wildly more secure than [the company] owning the device and tracking what's going on." The BYOD program, according to Blanchette, is not only saving money, but also improving employee satisfaction.

A move to the cloud is further down the road, Blanchette says, because the healthcare industry has big investments in fixed assets, the migration costs would be steep and there's a lack of healthcare-specific cloud systems. But it's an area he'll watch closely over the next six months. "To be successful, [a cloud provider] would need the scale, expertise and investment capacity to overcome the issues," he says. "If someone could figure that out, they would have a lot to offer prospective customers that would buy into this business model."

Embracing new computing models like the cloud and BYOD, he says, would allow healthcare CIOs to spend less dealing with mundane technologies like storage capacity and more time on systems that help save lives. "That's why we're here," he says. "If we're spending more than half the budget on infrastructure commodities, that's half the budget that's not making sick people better."

Tech spending will likely return to its normal levels when the stimulus program ends in 2013, Blanchette says, adding that spending could further retrench in response to healthcare reform.