This past summer, many members of the IT staff at Daymon Worldwide took a well-deserved break. For two years, there had been no time off, as IT was fully engaged with a master data management initiative, with the goal of creating a definitive source of operational data that provides all employees with accurate information in real time.
The breather was much needed, since 2012 promises to introduce several new projects that will similarly be aimed at honing Daymon's competitive edge.
According to Abhi Beniwal, senior director of IT at the Stamford, Conn.-based private brand and retail marketer, IT spending will increase next year, but there's a catch: "On the one hand, we're tasked to reduce overall costs, but we're also expected to invest in new things that will give the company a competitive advantage."
Meeting this two-pronged goal will involve cutting operational costs while shifting spending to new development, Beniwal says. The goal is to move from the current 70-30 ratio of ongoing maintenance versus new services and capabilities to a 60-40 ratio. Achieving this, he says, will involve taking real steps toward private and public cloud initiatives to reduce costs in some areas. It will also require a serious look at eliminating little-used, redundant and costly systems.
Double-Edged Sword
Across industries, IT groups are facing a similarly double-edged sword: Despite the uncertain economic recovery, businesses are cautiously increasing IT investments for next year, and they want to do more than just keep the lights on -- they want to see business returns, such as revenue growth and competitive differentiation.
"The good news is, they want to spend," says Alan Guibord, founder of The Advisory Council, an IT consulting firm in Salem, N.H. "The bad news is, they're being very demanding about their expectations of what will come out of IT for that investment." For many IT organizations -- which have spent the past couple of years hacking away at operating costs as a result of the recession -- that will mean not only carefully choosing projects that promise high returns, but also transforming their operating models and sourcing strategies to further reduce infrastructure costs and reinvest those savings in new endeavors.
In Computerworld's 2012 Forecast survey, for instance, more than one-third of the 353 IT executives polled said IT budgets would increase next year, just slightly more than last year. But while budgets are inching upward, IT remains laser-focused on the bottom line, continuing to seek out new ways to economize.
Indeed, when respondents were asked to name the most leading-edge projects they would undertake next year, the top two responses were virtualization and the cloud, both of which promise to radically remove costs from operating models. And the No. 1 management challenge for 2012, respondents said, will be budget constraints and economic pressures.
"The new normal for IT organizations is they can no longer run like a black box," says Craig Symons, an analyst at Forrester Research. "There's a difference between budget cutting and being lean and efficient. They need to be lean, and either you do that by taking advantage of newer technologies like virtualization and private clouds or you look at some of these new, emerging sourcing alternatives, like software as a service [SaaS] or completely outsourcing business processes themselves."
Forrester's most recent budget survey supports the notion that IT managers will be cutting costs with one hand while supporting business innovation with the other. Survey respondents cited efficiency as the No. 1 priority, but second in line was increasing IT resources and capacity to drive business innovation, Symons says.
As at Daymon Worldwide, IT organizations won't be asked to reduce the budget, but rather to shift spending toward new development, possibly even moving to a 50-50 ratio of maintenance versus new development, he says.
"The demand is there, but the overall budget can't grow to meet it. So to help fund demand, they need to shift the money," Symons says. "If people believe IT is a differentiator, they can't keep spending 70% to 80% of the budget on keeping the lights on."
Such a transition won't be easy, cautions Shvetank Shah, executive director of the IT practice at the Corporate Executive Board Co., a research and advisory firm. Historically, the percentage of the IT budget spent on maintenance has been stubbornly hard to shift, he says. "For every dollar spent on new projects, there's an annual 15 to 18 cents of maintenance spend that accompanies it, so many companies are unable to shake the tyranny of that math," he says.