PEBBLE BEACH, CALIF. -- CIO priorities have changed. They are now expected to speak the language of the business,...
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do more with less, and communicate effectively with shareholders.
These were the themes that cropped up at TechTarget's CIO Conference last week. The way CIOs budget, spend and manage their time and money has changed in this post-recession era. Companies are no longer investing in services or technologies without a tangible business reason to make the investment a priority.
Speak the language of the business
One way IT executives are speaking the language of the business is by relying on formal ROI metrics to justify new investments.
"More than 80% of companies now require ROI analysis to be performed on most IT investments," said conference speaker Tom Pisello, CEO of Alinean Software Inc., based in Orlando, Fla. Many organizations are starting to realize that "you can't manage what you don't measure."
"We have been implementing a portfolio management process for all IT initiatives that focuses not on ROI but on ROV (return on value)," said Shelton Waggener, Director of Central Computing Services at The University of California at Berkeley. He uses these processes to establish an investment to value ratio and ultimately to set priorities.
But what about that 20% of companies that are not implementing formal ROI metrics? According to Dan Merriman, president of Needham, Mass.-based Chapin Consulting Group Inc. and a conference speaker, IT executives are voicing similar excuses for not implementing a formal ROI process. Among them are that the project's value can't be measured, and that planning and implementation shouldn't be further complicated by the ROI process.
Scott McEvoy, CIO with Sunnyvale, Calif.-based Vitria Technology Inc., is part of the 20% without a formal ROI process. He said there's not much emphasis placed on ROI from the business side. McEvoy runs a small IT shop and doesn't have the time or resources to implement formal ROI programs. And he's not alone.
The truth of the matter is that not all CIOs have the time or resources to create and implement extensive ROI planning programs, according to Bob Denis, CIO of Sunnyvale, Calif.-based Trimble Navigation Ltd., and a speaker at the conference. Denis suggests CIOs measure what is important. Pick three to five metrics, and stick with them.
Do more with less
During the recession, many CIOs and business managers were expected to do more with less -- less staff, resources and money. Now that the economy is picking back up, IT organizations are getting more budget dollars. But is this new money enough to make the necessary investments to remain competitive?
IT spending is forecast to increase 5%-8% in 2004, according to Pisello. CEOs believe that this extra money is actually helping CIOs grow the business and invest in new products and services. The reality is that IT departments still have a backlog of projects from the pre-recession days that were never completed or funded. In addition, CIOs must now invest their newfound money in compliance-related services, increased security and infrastructure upgrades.
A recent Alinean study of more than 300 CIOs and IT executives revealed the following IT spending priorities for 2004: 20% on upgrading infrastructure; 15% on cost reduction and consolidation; 14% on security; 13% on integration; and the final 32% being spent on ERP, CRM, Internet/Web services and BI/Portal.
IT organizations are spending up to 90% of their budgets on "keeping the lights on," according to Pisello. This leaves only 10% or less for innovation and new investments.
Companies have the ability to do more without increasing spending levels. Pisello recommends that companies invest wisely and in innovation. "It's more important now to focus on what you spend, not on how much you spend," he said.
Spending wisely is key. A formalized budget process can help CIOs make smart decisions and give them more credibility with the executives and business unit managers.
"The budget is your credibility factor," said Denis. He suggests CIOs begin preparing their budgets five months ahead of time and work closely with the business units and controllers throughout the process.
Other CIOs in attendance agreed with Denis' suggestion for early planning. "We start in February for a July 1 fiscal year. We work for more than four months to prepare everything for submission by end of May. Fund and grant accounting means having a good handle on all the changes for the coming year, so that takes communication with different groups, and that takes time," said UC Berkeley's Waggener.
Communicate with shareholders
In today's improved economy, it's critical for IT executives to know the business and understand and communicate their goals to the company's shareholders.
More than 40% of technology spending is now controlled by business or functional managers, according to Pisello's research. CIOs need to work closely with the business units and functional managers to make smart technology decisions and investments.
"Don't underestimate the power of relationships," said Trimble's Denis. He makes sure to set aside time for lunches and one-on-one meetings with executives, especially during the budget planning season. Denis also recommends asking the business unit managers for scorecards. In his organization, he requests that the business units rate his IT organization on any projects or initiatives they provide.
It's very important for the business, IT, finance and vendors to all work together as a team to improve value for the organization, added Merriman.