Stormy times for IT spend

Gartner says UK users should be protecting their IT budgets, writes Ross Bentley

Gartner says UK users should be protecting their IT budgets, writes Ross Bentley

The forecast for the next 18 months for company spend on IT, says analyst firm Gartner, is "rain followed by showers". "That is to say, conditions will still be tough this year and get slightly better into 2004," says John Mahoney, vice-president for research at Gartner. But he says IT leaders can still make gains in three areas: the generation of short-term value, the preparation of skills and processes in anticipation of recovery and the start of investment for the future.

In a recent white paper, Gartner offered IT directors these new year resolutions for 2003.

Generate short-term benefit
Switch off at least 10% of legacy systems in 2003: IT departments must be able to support business change despite constrained budgets. This will require capacity to implement new systems.

Organisations may need to free up use of resources elsewhere such as low-use or duplicated operational systems. Typically, there are also opportunities where a new system roll-out is 80% complete, because a few business units have retained old systems. IS organisations should identify and analyse whether such systems continue to provide substantive business benefits.

Set a timetable for renegotiating supplier contracts to achieve best price and flexibility options: Since early 2001, enterprises have increased pressure to manage costs through negotiating and renegotiating supply contracts.

However, proactive and methodical contract management for its whole lifetime is not yet a systematic activity for many enterprises, despite its potential to save a lot of money. IT directors should set a timetable for contracts nearing key renewal to ensure that every renegotiation opportunity is planned and analysed for maximum advantage. This sounds simple, but too often companies stick with the contract default renewal period, maintaining the original contract terms and benefiting the supplier.

Listing all enterprise contracts, then scheduling and allocating the review work is a simple, but valuable, first step toward contract life-cycle management.

Prepare for some IT suppliers to consolidate or cease business: Gartner predicts that 50% of IT companies that are well recognised in their sector or the general IT industry will merge, change direction or cease trading by the second half of 2004 (0.8 probability). IT leaders should:

  • Evaluate the risks of investing in a particular supplier's technology or service

  • Give priority to reviewing suppliers of business-critical services or whose services form a substantial part (more than 10%) of the IT portfolio

  • Ensure there is contractual protection and understand, identify and research alternative sources in case key suppliers change priorities after a merger, or cease to trade

  • As a minimum, ensure existing best practice of appropriate escrow arrangements are implemented for customised software and documentation.

Create an initiative to demonstrate the value of IT and the IS organisation in business terms: The business value that IT can deliver depends significantly on the credibility of the IT department. Credibility has been badly damaged in recent years, particularly during the cost cutting of 2002. IT leaders should build the credibility of their IS organisation to ensure their enterprise achieves effective business value from IT. They should set appropriate enterprise expectations about the capability and potential value of IT.

Prepare skills and processes for recovery
Review recruitment and retention strategies for key skills: For many IS organisations, the headaches of finding or keeping skilled staff at reasonable costs have abated over the past 12 months. However, Gartner expects skills shortages will reappear later in the year. Prepare now with the following actions, each of which has a lead time of two to three months:

  • Implement a "bounty scheme" for staff to receive commission for introducing a friend who is subsequently recruited. This avoids high agency fees, supplies pre-qualified leads and boosts morale by showing respect for employees' industry status and professional network

  • Rationalise and prioritise training budgets as conditions improve to invest in key employees that have the market opportunity to move on and feel they must progress their personal development, otherwise they will look elsewhere

  • Avoid prolonged constraint on training budgets. Plan early because it takes time to uncover which staff groups have the greatest need, and to create ways to justify training investment for some, but not all.

Establish leadership coaching and mentoring for chief information officers and other IS leaders: The focus of IT leaders is shifting from technology to relationships, business value and architecture, and from a largely internal focus to include external issues and virtualisation.

However, this shift takes many IT leaders outside their "comfort zone" and they will need support to make that transition. IT departments should establish formal programmes of coaching and mentoring for the chief information officer and the IT leadership team (for example, by experienced business leaders).

Understand and prepare for the impact of offshore sourcing: The availability of cost-effective sources of offshore IT resources outside the main developed economies continued to grow strongly during 2002.

There is an increasing body of experience in how to move to offshore sourcing and in how to sustain those relationships. IS organisations should evaluate the potential of offshore sourcing. They should prepare for the impact it will have on the types and depth of skill they will retain in-house.

Invest for the future
Create a real-time enterprise vision and road map and sell it to the rest of the enterprise leadership: As the downturn levels out, budgets will stabilise and the IS "tidy-up" will be substantially complete. Something is required to reinvigorate the business IT change agenda as we enter recovery.

Gartner recommends that CIOs take a proactive lead in moving their organisation toward a real-time enterprise "time-based transformation" approach to business improvement.

A focus on radical process cycle-time reduction will be appropriate because it will focus on the business value of IT and leverage significant new value from existing investments (along with some new ones) in a clearly measurable way. Technologies now available can be used to move information very quickly and can enable substantial improvements in business efficiency and competitiveness by increasing the speed of business decisions and interactions.

Gartner is advising IT departments to pilot two key real-time enterprise technologies in 2003: web services and instant messaging. It predicts that web services are pivotal to future actively managed, flexible and responsive enterprise architectures. Gartner says, "It is not possible to sit back while competitors explore this territory without risking that they will open a strategic business lead you will find hard to close."

IT leaders should also evaluate enterprise-class instant messaging. Caution is advisable, but simply ignoring or blocking instant messaging will damage the reputation of the IS organisation. European IT directors in particular should pay attention to this technology, which was relatively low on their priorities list in 2002.

Prepare to implement simultaneous security and transparency: No IT checklist for 2003 is complete without an item on security. Concerns will continue to test the resolve and the budgets of IS organisations. However, enterprises are simultaneously implementing new outsourcing and partner sourcing arrangements to reduce long-term costs.

Demand and expectation for business transparency by customers, partners and regulators continue to increase. This creates a strategic business challenge to provide access simply, safely and economically to everyone who needs it and simultaneously prevents unauthorised or destructive access.

Read more on IT jobs and recruitment