14 Feb WTN Survey: Is slowing economy placing a damper on IT spend?
Madison, Wis. – Are growing concerns about a slowing economy clearly having an impact of projected IT spending in Wisconsin?
While the assumption is natural, the economy, which grew at an anemic 0.6 percent nationally in the fourth quarter of 2007, is not the only factor in some companies that anticipate flat or declining IT spending in 2008, as outlined in a recent survey conducted by WTN Media. The survey highlighted several other trends as well, including a lack of prepraration for potentially costly e-discovery litigation and a lack of focus on business strategy among technology managers.
At first glance, the subdued level of IT spending appeared to top the list of ominous trends. In the survey, CIOs in Wisconsin were asked about the change they expect in IT spending for their organizations from 2007 to 2008.
In contrast to Gartner’s fall 2007 forecast for an eight percent increase on global IT spending in 2008, the WTN survey – taken in December of 2007 and January of 2008 – indicates that the largest segment of respondents, 30.1 percent, expect their IT spend to be flat in 2008.
For some that anticipate flat or reduced IT spend, the economy is not much of a factor. Mike Jackson, vice president of global business services and CIO of Rockwell Automation, projected a decrease, but it is more due to the corporation’s key strategic initiative – an ongoing global process transformation with solutions provided by software vendor SAP.
By the conclusion of the five-year project, Rockwell expects to retire 400 legacy applications, and it’s already paying dividends in terms of IT spend. “Our efforts to contract our legacy spending so we can continue spending on SAP is the driver for our spending decrease,” Jackson said. “It is independent of the economy.”
Among those who project a flat IT spend, Ralph Kauten, CEO of Quintessence Bioscience, said current economic conditions are not affecting the company’s IT spending decisions. The company is approaching important clinical trials on its leading drug candidate, a cancer-fighting biotechnology, but there is no overarching need to accommodate it via upgraded IT.
“The systems we currently have in place would not be greatly enhanced with newer technology,” Kauten said. “Employing the recent technology advances will not enhance our work greatly and therefore the costs of upgrading will exceed any benefits.”
Judy Murphy, vice president of information services for Aurora Health Care in Milwaukee, indicated that her organization’s projected flat rate of spending was baked in by decisions made several years ago.
“I don’t think it was the slowing economy that led to our flat spend,” Murphy said. “I think it was more around trying to keep healthcare costs down. We had made a commitment three years ago to keep our rate increase below the inflation rate.”
Nor will economic trepidation stop some Wisconsin companies from trying to better answer questions about whether new technologies fit the enterprise. With all the buzz created by trends like social computing, collaboration, and WiMAX, Deb Rislow, chief information officer for the La Crosse-based Gunderson Lutheran, wants to be ready.
“I want to be as prepared as possible regarding our corporate IT strategic perspectives of new available technologies,” she said, “so when I’m ambushed on the way to lunch or a meeting, I’ll be ready.”
E-disaster looming?
In a perhaps the most worrisome trend uncovered by the survey, 31 percent of respondents somewhat disagreed with the assertion that their organization is well prepared to handle an e-discovery process as part of a litigation, while 13 percent strongly disagreed, and only eight percent strongly agreed. This question elicited the largest number of no opinions – 22 percent.
Erik Phelps, a partner and business attorney with Michael Best & Friedrich, said those who don’t tackle the problem are rolling the dice. “The fact nearly half of your respondents are unprepared is consistent with what we see in the marketplace, and I suspect that many who provided no opinion simply did not want to admit to their lack of preparation,” Phelps said. “Despite how daunting a task it seems, the ostrich approach of ‘stick my head in the sand and hope it goes away’ isn’t likely to work, and these folks really need to tackle the problem soon.
“If they do not, and keep rolling the dice, they better hope that their litigation opponent isn’t the one in five companies in your survey who are prepared because being prepared can be an enormous strategic advantage in litigation.”
Attorney Don Daugherty, an expert on e-discovery and a member of the business litigation team at Whyte Hirschboeck Dudek, said the expectations of the courts are for full e-discovery compliance.
“Fairly or unfairly, the courts expect all businesses, regardless of size, to have a handle on e-discovery and be able to handle the challenges that electronic information presents during litigation,” he said. “If you don’t meet that standard of being able to deal with electronically stored information, you’re falling short of the court’s expectations. It’s worse if your adversary has his ducks in a row regarding e-discovery rules.”
Daugherty also made reference to the multi-million sanctions the courts have imposed on companies that don’t have their act together. The sanctions include having to pay a part of an adversary’s legal fees, not being able to use information that supports your case, or having a judge instruct a jury to infer that your company intentionally destroyed the information, which “can certainly help the other side,” Daugherty said.
More generic IT
Also significant is the fact that operations and functionality – what people like Gartner’s Mark McDonald decry as “generic IT” – still dominate the time of most CIOs, as 53 percent of respondents identified this as the activity they devote most of their time to.
Meanwhile, 25 percent of the respondents identified business transformation as the number one time commitment, while 22 percent identified strategy – two activities that McDonald, Gartner’s group vice president and head of research for executive programs, strongly endorses. The latter two, he notes, are more likely to drive business value.
“It’s not about the time spent or the money spent, but the kind of business impact you’re going to have,” he remarked.
Most respondents, when asked whether they agreed that the CIO or top IT executive in their organization participates in forming business strategy, not just IT strategy, 33 percent strongly agreed with that statement, while 36 percent somewhat agreed with it.
The best way for CIOs to be invited to strategic discussions is to demonstrate the ability to solve business problems and deliver business results, especially in the area of business process change. “CIOs have to be successful in cleaning up their own [IT] house before they are invited to tackle business process transformation,” McDonald said.
He indicated that executives as a whole have a similar problem with a lack of strategic focus, only worse. “We’ve found that they spend more time just running the business and delivering on the available plan than CIOs do,” he said.
Methodology
For this survey, WTN sent e-mail surveys to 434 IT professionals, with a response rate of 19 percent. About 29 percent of the technology executives that responded to the survey are from organizations of less than 250 employees, 16.9 percent represented businesses of 500 or more, and 16.9 percent are from organizations of 10,000 or more. Of the remainder, 9.6 percent are from businesses of 1,000 or more, 13.3 percent are from companies of 2,500 or more, and 4.8 percent are from ventures of 5,000 or more and 7,500 or more, respectively.
Most, 75 percent, have annual IT budgets of $1 million or more, including 11.3 percent that spend $50 million or more, another 11.3 percent that spend $100 million or more, and 3.8 percent that spend $250 million or more.
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