IT must pay as spending slows down

IT directors are coming under increasing pressure to show return on investment as the slowdown in IT spending begins to grip.

IT directors are coming under increasing pressure to show return on investment as the slowdown in IT spending begins to grip.

Company boards are likely to demand that IT projects show rapid pay-back, while a recruitment freeze could mean that IT departments will have to retrain staff rather than hire new employees. IT managers can also expect to make more use of existing hardware.

With the dotcom collapse and many US IT suppliers posting poor results, UK IT managers were watching for any impact on their departments. The first signs came last week when Merrill Lynch research showed 40% of European companies would freeze IT spending, while a survey at the CeBIT show in Hanover found that a third of companies believe IT spending will bottom out in 2002.

Annemarie Wolfe, CIO in Europe for Grey Global, a marketing and communications group, said IT directors could be under more pressure than ever to provide return on expenditure. "IT is increasingly challenging to measure the benefits of IT projects to the business, rather than implementing IT change driven by the 'latest fashion' syndrome.

"Before Y2K companies accomplished a great deal, in addition to addressing millennium issues, Wolfe said.

"The implementation for Y2K accelerated a lot of projects while others were left until it was over. Now that has been achieved I think there may have to be a natural slowdown in IT spending in some companies," she added.

Alexander Drobik, vice-president of the business management group at Gartner, said attitudes to IT spending were changing. "A year ago it was spend, spend, spend but that has all changed. Funding has not dried up but what was default a year ago has become an exception.

"Switched-on companies will be looking to see how they can leverage their existing technology and re-use their hardware," he added.

Margaret Smith, director of business technology and delivery at insurer Legal & General, said it would be wrong to expect IT budgets to rise every year. "Our IT spend from last year has been steady with no rise but no fall," Smith said.

But she agreed that companies may start to demand a more rapid return on investment from IT projects. During previous economic slowdowns IT budgets were cut by about 10%, she added.

Where companies had previously financed IT projects through borrowing, the current climate requires funding through savings, according to Patrick Bossert, head of e-strategy, comms and content at KPMG. "There will be a major shift to operational effectiveness and IT managers will be under more pressure to squeeze costs."

IT managers may struggle to keep abreast of new cost-cutting IT initiatives from different regions in large corporations, Bossert added. They need to work closely with company directors who are shaping efficiency drives.

"I hope IT managers will act as a catalyst for chief executive officers who are identifying the business case for operational effectiveness." Economic jitters will also sideline emerging technologies such as e-procurement, Bossert added.

Some IT managers have anticipated the freeze and already thinned out IT projects. Keith Burgess, e-commerce enhancement manager at The Woolwich, said, "People had a good look at their portfolios following the dotcom crash.

"We had a good sweep out after that and all the risky bits have already gone, so there's not much left to do."

Computer Weekly reporters

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