In a weakening economy, CIOs should heed this advice: Better to
have and not need, than to need and not have.
 | | | | | If a CIO has fluff built into the
budget then shame on him.
Ron Maillette
CIOEducation Corporation of
America |
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In a research note, Gartner Inc. vice president Ken McGee advised
IT leaders that they should prepare two budgets for 2008: One
should be based on the marginal growth IT organizations have seen
in their budgets so far this decade. The second budget should be
based on a spending decrease of at least 10%.
McGee is planning for a recession and cited several surveys and
forecasts issued in recent months.
For instance, economic research firm Global Insight Inc. in
Waltham, Mass., lowered its projection for U.S. gross domestic
product growth from 2.5% to 2% for 2008. Global Insight has also
predicted a
30% chance of a recession (PDF). In September a
poll of 52 economists conducted by The Wall Street Journal
found a
36% chance of a recession in 2008.
McGee is recommending that CIOs look at eliminating assets that
are more than two years past their depreciation cycle. They should
also look for opportunities to eliminate redundant hardware and
software assets, maintenance contracts and excess capacity within
wide area networks.
"The fact that most companies' senior leadership might ask IT
[to make cuts] is very plausible," said Ron Maillette, executive
vice president and CIO at the Education Corporation of America, a
Birmingham, Ala.-based parent company of several for-profit
educational institutions. "But if IT is really doing their job and
is really aligned with the strategic direction and spend of the
company, then I'm not sure that a 10% cut would be that easy."
Maillette said IT organizations that are truly aligned with the
business could only make those cuts if the business is prepared to
execute fewer strategic initiatives that require IT
investments.
"You can always take 10% out, but it comes down to what you're
willing to hurt in order to do it," Maillette said. "If a CIO has
fluff built into the budget, then shame on him. But if he's making
strategic investments, then you have to ask leadership a very hard
question: Are you saying to me that what you had as a long-term
strategy is no longer a long-term strategy, and I should no longer
invest in it? It's not a rhetorical question. It should be
asked."
Maillette was running IT for a division of Coca-Cola Co. when
the country was last hit by a recession around 2000. At the time,
he was responsible for 123 applications. When it came time to make
budget cuts, Maillette took a different tack. He didn't just make
cuts -- he eliminated redundancies that he hadn't yet had time to
tackle. But instead of just returning all the savings to the
business, he used some of it to make strategic investments that
made his organization more operationally efficient.
"I consolidated a number of those applications," he said. "I had
a lot of redundancy. My budget was up around $48 to $50 million.
When I retired [from Coca-Cola] in 2002, my budget was $37 million.
I took out $12 million and reinvested some of it in other
technologies, such as the Web, which a lot of people were running
away from at the time. And I implemented handhelds for the sales
force and implemented a piece of ERP. I took costs out in one
place, reinvested the money in some areas and was able to give
money back in the process."
Maillette said a lot of CIOs are tempted to just cut heads when
the budget-cut mandate comes down. He said CIOs should get more
innovative and creative and think of ways to improve the way the
business works.
"Do that by taking overlap and redundancy and superfluous stuff
you haven't gotten around to replacing, and in effect meet the
objective of the request while improving the business," he said.
"At some bigger companies you don't always look at things with a
magnifying glass as you should."
George Bock, senior director of IT at Sole Technology Inc., a
Lake Forest, Calif.-based maker of sports footwear and apparel,
said his budget is growing in 2008 and he doesn't think he'll need
to prepare a recession budget.
"I have never done a recession budget and don't really plan on it
in the future," Bock said. "If I have been doing my job up front, I
am very well connected to the executive staff in the strategic
planning process so there are no surprises."
If he were forced to make cuts, Bock said he would probably
start with projects, then maintenance cost. That would be followed
by vendors and service providers.
"The cuts would most likely put pressure on support services and
increase our problem-resolution time," he said. "From a project
basis, we have sound project management processes established where
the company knows priorities are always being reviewed with the
business, so aside from something not being completed the decision
to shift gears would be followed."
Let us know what you think about the story; email:
Shamus McGillicuddy,
News Writer