How Will You Invest Invest Your IT Dollars?

There's precious little money for IT investments this year, but the cash Premier 100 leaders do have to spend will go toward projects with minimal risk and surefire payoff.

The year is brand new, but the budget challenges are old news: very little money to spend and plenty of projects competing. Among this year's Premier 100 IT Leaders, spending plans vary widely. As expected, some IT shops face budget cuts driven by lower-than-anticipated revenue. Even many CIOs in healthy industries will rein in spending voluntarily as a preemptive defense against a possible slowdown. Still others are already accustomed to spending less than 1% of revenue on IT -- a tight budget to begin with. Perhaps most surprisingly, at least one past Premier 100 IT Leader is increasing his IT spending by 25%.

In other words, technology spending in 2003 will depend heavily on industry and business needs. Some of the Premier 100 leaders will invest to meet federal regulations; others will double their IT training budgets because they have recently rolled out several applications. Many enterprises, having spent years trying to increase revenue through customer-facing technology initiatives, will turn their focus inward, where returns are more assured.

There's a common thread among this year's IT leaders, however. In forward-thinking enterprises, technology spending is now clearly and closely tied to corporate strategy.

It's a perennial challenge: In a recent Gartner Inc. survey of 1,500 CIOs, "strategizing for IT/business linkage" was listed as the No. 1 IT management priority, and it has topped other surveys for a decade or more. In leading organizations, IT is no longer viewed as a wild card or black box; its budget is scrutinized by an executive committee. Projects that get the green light are expected to produce results.

Taking a Deep Breath

Daniel W. Garrow, senior vice president of information systems and CIO at Mohegan Sun Casino in Uncasville, Conn., has spent the past two and a half years presiding over a $1 billion property expansion and simultaneous infrastructure upgrade. He plans to focus on fine-tuning a host of new systems and applications. "We completely redid our network," he says, which included bringing broadband Internet connections to a new 1,200-room hotel for the $787 million casino operation.

"A lot of the infrastructure expenses are behind us," Garrow says. "In 2003, our focus is on cleaning up what we call logical construction debris. There are loose ends to tie up, interfaces that need to be tweaked. . . . We're taking this year to settle into our new systems."

Among those loose ends is Mohegan Sun's first suite of hotel management software from Lawrenceville, Ga.-based Inter-American Data. The hotel has Inter-American's Lodging Management System 1.5 up and running, but Garrow is still fine-tuning the system and integrating it with a proprietary Mohegan Sun loyalty-card program that lets guests earn points when they gamble and then redeem them anywhere on casino property.

Even businesses with improving market shares, outstanding brand recognition and sound business plans have been affected by the slow economy, and Premier 100 leaders are adjusting accordingly.

"The North American region is targeted to deliver operating income at near double-digit growth rates in an industry that's growing at only 3%, so we want to leverage every dollar spent on technology," says Doug Watson, a vice president and director of IT for the Americas at Miami-based distiller Bacardi USA. "We have an IT governance model in place that ensures we're spending dollars that directly tie back to our strategic drivers."

As a result, Watson will spend heavily this year on a program that rationalizes Bacardi's supply chain software. The company long ago standardized on tools from Denver-based J.D. Edwards & Co., but its four implementations -- one in Jacksonville, Fla., two in Puerto Rico and one in Miami -- "grew up separately" and use different data models that make information-sharing difficult, Watson says. Driven by business pressures, his IT team will create a single data model this year aimed at "complete data transparency" that spans the company's supply chain across geographic regions, he says.

Like Watson, Premier 100 IT Leader Linda Roubinek is focused on helping her company achieve its strategic goals. As systems officer at Nationwide Mutual Insurance Co., Roubinek was instrumental in realigning the Columbus, Ohio-based company's IT spending model. Last year, Nationwide launched a group of cross-functional strategy and technology councils that are in charge of setting the company's IT agenda and making sure all major projects contribute to that agenda.

As a result of council decisions, Roubinek will focus this year on creating Web-enabled tools for Nationwide's agents. "We've invested in CRM in the past," she says, "but we're doubling that investment in 2003." The goal is to speed time to market for new rates and regulatory changes. That's a stiff challenge, in part because Nationwide does business in 46 states, each of which has its own insurance commission that must approve proposed offerings. Nationwide spent much of 2002 holding focus groups for insurance agents, and it's now ready to create the proprietary tool.

Inside the Firewall

It's appealing to spend money on customer- and partner-facing systems that can potentially enhance revenue. And indeed, "the bulk of IT expenditures going forward will focus on customer-facing stuff," says Tom Pohlmann, an analyst at Cambridge, Mass.-based Forrester Research Inc. But that's a long-term trend; in the near future, many CIOs and business executives, having been burned by expensive enterprise resource planning (ERP) and customer relationship management (CRM) implementations that delivered desultory returns, are focusing on internal upgrades with relatively certain payoff.

For example, Glen Allen, Va.-based Owens & Minor Inc. has ambitious strategic IT plans, but at the same time, "we've got to modernize our legacy business apps in 2003," says David R. Guzman, senior vice president and CIO. The $3.9 billion health care distribution and logistics company has a range of legacy applications written in what Guzman calls "mid-'80s alphabet soup" -- MVS, Cobol, CICS and the like. The six-member IT governance team considered a major ERP implementation but rejected it as risky and likely to waste much of the company's existing data.

As an alternative, Owens & Minor will spend much of 2003 using RescueWare, a product from Cary, N.C.-based Relativity Technologies Inc. that converts legacy code into Java, HTML and Visual Basic.

Guzman says he will also spend much of his time overseeing Owens & Minor's IT outsourcing deal with Dallas-based Perot Systems Corp. In July 2002, the companies expanded and extended their existing relationship into a comprehensive seven-year, $229 million services agreement. Previously, Perot Systems handled application development and network operations, while mainframe operations were outsourced to IBM. "We just gave Perot the whole pie," Guzman says, because projections for return on investment showed a savings of 35% over the seven-year contract.

What Guzman likes most about the Perot Systems deal is the agility it affords Owens & Minor. When operations are well in hand, Perot shifts its personnel to development tasks. Howard Rubin, an analyst at Stamford, Conn.-based Meta Group Inc., says such agility is a growing need for corporate IT. "Right now, even IT departments that have cut their budgets are too inflexible," he says, calling heavy upfront expenditures for infrastructure "the equivalent of buying an investment that you can't cash in for 20 years." Rubin says turning fixed costs into variable costs will be a major trend among IT leaders this year.

Telecom Jitters

Another health care firm, TriWest Healthcare Alliance, is also planning internally focused projects for 2003. Premier 100 IT Leader James D. Gibson, director of IT at the Phoenix-based company, which offers health care for Department of Defense employees, says TriWest will upgrade its 800 desktops from Windows NT to Windows 2000 this year.

In addition, TriWest is studying requests for proposals for voice over IP (VOIP) telephone service. "We've not yet made the final decision to go ahead with that," Gibson says, "but we've done a cost-benefit analysis, and we think it'll pay for itself in two years."

TriWest is understandably nervous about the health of its telecommunications suppliers: Its local service is provided by Qwest Communications International Inc. and its long distance by WorldCom Inc. Gibson says the uncertainty surrounding these companies played a factor in his decision to invest in VOIP this year.

Getting Out Front

Leaders must anticipate change, and some Premier 100 IT Leaders are doing just that by adjusting their IT spending -- before anybody tells them to. Emcor Group Inc., a global $3.7 billion construction firm in Norwalk, Conn., has enjoyed robust fiscal health throughout the economic downturn. But because construction lags the general economy, group CIO Joseph A. Puglisi is tightening his organization's belt in the budget proposal he's now developing. "We may have to control spending over the next 12 to 18 months, and I'm prepping my budget accordingly."

Puglisi has told IT managers to present their budget needs in three columns: committed costs, money needed to sustain the level of services Emcor's IT provided in 2002 and money the company would need to spend in order to improve services. Puglisi says "highfalutin wanna-haves" are unlikely to make the cut in 2003.

Improved security is a must-have, though, and it's an area Emcor will stress in 2003. Puglisi says he's particularly concerned about the company's Lotus Notes system. Emcor has 67 far-flung operating units and often grows through acquisition (it bought 16 companies in 2002 alone).

Often, an employee of one Emcor unit is asked to perform duties for other units in his geographic region. This causes secure-access problems. "Notes has very good security mechanisms, but they're rigidly defined," Puglisi says. "If you tell Notes, 'The data within an app is unique to a company,' then a worker for Company A can only see Company A data. That's a good thing, generally -- but we need to let him see data for Companies B and C."

Naturally, though, any access must be secure. So in 2003, Emcor is "underwriting a significant investment in strong walls with good tunnels," Puglisi says.

Upping the Ante

Given the generally tight budgets this year, one of 2002's Premier 100 leaders may be the envy of the class of 2003. Steve Matheys, CIO at Schneider National Inc., will see his budget grow 20% to 25% this year. The $2.4 billion shipping and logistics company in Green Bay, Wis., "spent the last couple of years putting our business in order," Matheys says.

Schneider's eight-member IT steering committee sifts expenditures into three categories -- run the business, grow the business and transform the business -- and tries to spend 75% of all discretionary dollars on the third category. The company believes it can use technology to squeeze more expenses out of its supply chain, and much of the increased 2003 budget will go toward this goal. Matheys' team wants to integrate two homegrown applications that have heretofore stood alone: a proprietary decision-support system that weighs thousands of factors before recommending a shipping method and the CRM-type program that customer service representatives use when quoting rates over the phone.

Follow the Leaders

Although IT leaders' spending plans for this year depend heavily on industry demands and company needs, there's one important constant: In leading enterprises, IT budgets are driven by business strategy. This seemingly straightforward linkage has eluded CIOs ever since the data processing department became the MIS department.

Difficult fiscal times, return on investment disappointments following the tech spending spree of 1995-2000 and the maturation of the CIO's role have prompted businesses to allocate their IT budgets just as they do in other departments. The Premier 100 class of 2003 welcomes this shift -- and as a result are helping their enterprises succeed.

Ulfelder is a freelance writer in Southboro, Mass. Contact him at sulfelder@yahoo.com.

Related:

Copyright © 2003 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon