Annual IT Budget? Kill It

CIOs need Net-style flexibility for enterprise projects

Any observer of the contemporary debut de siecle scene would no doubt agree that technology is ground zero in the New Economy. CIOs and CTOs have become celebrities of the emergent digitally aware society. The lifeblood of our good times, of course, is money. And the IT spigot is wide open.

Corporate futurist types like me predict that by the year 2004, the average Fortune 500 firm will have to spend 20% to 40% of its operating budget on IT just to stay competitive. Sound crazy? Just ask Merrill Lynch, Charles Schwab and Vanguard Financial what percentage of their budgets are spent on IT today.

I strongly believe that IT done right creates shareholder value. But I have to step back from the technology tribe and observe that we are in danger of believing our own PR. Financially, and in many cases operationally, IT is still a mess. In the words of one financial controller: "I don't care what the CEO says; you guys still suck."

Charlie Feld, the former CIO at Delta Air Lines, maintains that IT doesn't have a skill set shortage but is suffering from a poorly managed, poorly structured delivery engine. He and other longtime CIOs contend that the days of large IT shops are numbered. Such organizations are too big, too slow, too expensive and add too little value.

I am fortunate to have instructed executive audiences at a number of prestigious universities in the U.S. and abroad, and to each impressive collection of senior executives, I always pose this question: "Have you been trained in how to make good IT investment decisions?" In 17 years of teaching, no one has ever answered yes. Not only are executives unschooled in making these decisions, but they also fail to learn from the bad IT investments of the past.

How do we change this? First, kill off annual budgeting cycles. In this fast-changing sector, rigid adherence to such cycles borders on malfeasance. Bob Kaplan, a CPA and Harvard Business School professor, says annual budget cycles measure the wrong things. Jeff Williams, a professor at Carnegie Mellon University and author of Renewable Advantage: Crafting Strategies in Economic Time, says the biggest piece of "wrongness" is the time frame used to measure the enterprise. Business isn't an annual game, so budget cycles should be replaced by project cycles driven by opportunity.

Think of it in terms of railroads and taxicabs: Railroads were designed with rigid rules, predetermined tracks and no real flexibility. Taxicabs plan far less. They cruise the city, seemingly at random but in fact concentrating their efforts in areas where customers are more likely to need them.

CIOs are facing organizations that want taxicablike customizability but are saddled with financial systems marred by train-track inflexibility. Why anchor future spending on past spending? Let's change this to a system more akin to bond trading, where CIOs enter and exit opportunities (or projects) as the environment changes. Perhaps then that celebrity status will be truly deserved. roi

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Copyright © 2001 IDG Communications, Inc.

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