Forecast 2014

Forecast 2014: How to wring value from your IT budget

Hosted services will reign in 2014, but IT leaders will be challenged to accomplish everything while still containing costs.

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"Until now, we were more of a 'do it all -- we build it all ourselves' organization," says Bharat Amin, business technology officer at BAE Systems in Arlington, Va. "Now we are putting more emphasis on 'we can't do it all.' We may have to buy things and selectively outsource, and we may have to buy services."

The lingering impact of the U.S. government's budget sequester has left the defense, aerospace and security firm's 2014 budget plan up in the air. "The general outlook for 2014 is the same as this year, maybe a slight reduction because we're not sure of the effect of sequestration," Amin says.

The deficit-reduction measures required by the 2011 Budget Control Act mandate two rounds of cuts, each averaging about $50 billion per year through 2021. The White House has submitted a fiscal 2014 defense request that complies with the first round but not the second. In July, U.S. Defense Secretary Chuck Hagel wrote a letter to Congress requesting relief from the additional $50 billion in cuts -- arguing that the scale and abruptness of the reductions would damage the nation's defenses.

Congress could make a decision by the end of the year, "but not having that visibility, we have to play all the scenarios. We're keeping our Plan B ready," says Amin.

Plan B involves saving money by using more hosted services. For example, BAE could cut its spending on office productivity tools in half by moving to Office 365, Microsoft's cloud-based version of Office and SharePoint.

"Our business is challenged to become more cost-competitive because as [sales decline] and new opportunities are shrinking -- either you're stealing [customers] from someone else or you have to be very cost-competitive to win new business," Amin says.

Spending on hosted services will account for about one-third of next year's IT budget at Texas Multicore Technologies in Austin. The three-year-old maker of multicore programming tools uses SaaS-based systems for human resources, accounting and customer relationship management. The majority of its servers are also hosted at providers' data centers.

CIO John Havener says using services doesn't really cut costs, but it does improve efficiency. "I think [the cost of hosted services is] pretty close to the same as what we'd invest if I capitalized the hardware [cost]," he says. "We're trying to stay at the forefront of the technology, meaning we end up having to replace servers at least two to three times a year -- and that build-out time is pretty significant for my IT staff. I need some better way to do that."

With hosted data centers, "we can define the process and hand it off to one of those service providers and they can get it prepped to a degree that it minimizes our time doing the configuring on our side," says Havener.

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