21 Jan Gartner's Mark McDonald: CIOs may have only four months to show results
Chicago, Ill. – Mark McDonald is not prone to exaggeration. That’s why when the group vice president and head of research for Gartner Executive Programs says CIOs have a shrinking window of opportunity to demonstrate their value, he’s probably not blowing smoke.
Commenting on the results of a 2009 Gartner CIO survey, McDonald agreed that this is a critical period for CIOs to demonstrate their value to organizations.
“They’ve got four months,” he said bluntly. “We do anticipate that there will be some CIO turnover, and it’s all going to be about their ability to execute their plan and have a positive impact on their company’s operations.”
With such a small window of opportunity, CIOs have to be decisive about their priorities, resourceful about what they do, and focus on a particular set of results.
“I’ll put it to you this way – now is not the time for CIOs to spread the IT budget across business units,” McDonald stated. “Now is the time for CIOs to pick one thing that they have to get done fast and get done well and put all of their resources against it.”
Cost structure
The Gartner survey found that 2009 IT spending budgets essentially would be flat. The worldwide survey of 1,527 CIOs was conducted from Sept. 15 to Dec. 15, 2008, and represents CIO budget plans reported at that time. The survey represents more than $138 billion in corporate and public sector IT spending.
According to Gartner, IT spending increases have been modest over the past five years, so the flat IT spend is no surprise, especially given economic conditions. “From the case studies we’ve done, we’ve seen companies looking to use IT to change their cost structure more than just cutting the IT budget,” McDonald said.
Changing organizational cost has become an IT mantra that is only intensifying during the recession. Gartner noted that working smarter, not harder, involves business process transformation. Process change usually is the first step in aligning a new business system to that improved process, but according to McDonald that’s not necessarily the best way CIOs can justify IT spend to upper management.
In this economic climate, he said the way CIOs are going to justify IT spending with upper management is linking it to improvements in cost structure. The prevailing attitude is, “I’ll give you money for IT to improve and change processes, but you have to show me how it’s going to lower the cost structure of those processes,” McDonald explained. “It’s not just about automation and it’s not just about installing new software. You have to show management that you’re able to do it cheaper and that you’re able to do it with greater capacity than you have in the past.
“In an uncertain environment, the only thing I can do is make sure that I’m managing my costs as much as possible because it’s about the only thing I can control.”
Getting left behind
Based on Gartner’s findings, the top technology priorities of global CIOs involves harvesting value from existing core technologies in a way that solidifies business intelligence, enterprise applications, and virtualization. In this environment, there are some technologies that will get left out in the cold – “Basically, anything new,” McDonald said – but Web 2.0 tools are not among them.
McDonald said anecdotal evidence, including conversations with CIOs, indicates that social computing tools are on a different plane because such tools are not prohibitively expensive to adopt. “What’s the average cost of implementation of a new business intelligence capability? McDonald asked. “It’s not $5, but companies are implementing web 2.0 technology for very little money.
“Investments in BI and CRM and ERP were viewed as investments, and fairly significant capital expenditures. Companies are doing web 2.0 things almost as a straight operating expense.”
That’s true, he added, whether companies apply Web 2.0 tools internally to foster collaboration, or externally to attract new customers and retain existing ones. McDonald advised against favoring one approach over the other. The deteriorating economy does not mean that any aspect of social computing, which Gartner cited as a top emerging trend in 2008, should be placed on the back burner.
“Every company, regardless of who they are, is probably going to be looking at using Web 2.0 to improve internal collaboration,” he noted, “but I think there is a significant difference between companies that are effective and have a history of being effective, which is achieving their goals. Those companies that have that history of being able to achieve their goals are definitely telling us that they are continuing to invest in attracting and retaining customers.
“When we look at companies that are less effective, that report that they are less confident in their ability to achieve their results, they have a tendency to focus only on the internal pieces. Companies that have greater confidence in their ability to achieve results are focusing on both the internal and the external.”
One casualty of the recession, according to outlets like eWeek and industry analysts like the Burton Group’s Anne Thomas Manes, is service-oriented architecture, primarily due to its association with large, expensive projects. While eWeek noted that SOA is survived by certain Web 2.0 offspring and architectural solutions focused on services, McDonald is not ready to write its permanent obituary just yet.
He thinks SOA still carries enough benefits to make a comeback when the economy stabilizes. “To the extent that companies have got to make a big, initial upfront investment, that [observation on SOA] is as valid an argument as any,” he said. “However, what we did see is companies that already have a services orientation are starting to apply those things to be able to do projects faster and to be able to do projects that really do change the cost structure of the company.
“If you’re not into it and you’re not doing it now, I don’t think you’re going to get the resources to learn and do it going forward,” he added. “One of our chief study companies turned out to be Cisco. What Cisco did is that they were able to dramatically cut the cycle time of their sales proposal process and dramatically improve its accuracy and its flexibility by implementing services.
“I think that’s the kind of thing that’s going to be important.”
Forcing the issue
According to Gartner, one way to bring about the necessary change is for investors to press the issue of how companies are using IT to support cost and cash flow-based technologies. At the moment, McDonald said nobody is asking that question at investor conference calls, but it should be asked.
Since the executives who present quarterly financial reports usually pull their punches and speak in generalities, the issue has to be approached with three questions, one of which is somewhat counterintuitive, McDonald said.
“The first question is how are you going to achieve your operational efficiency goals?” he stated. “The CEO and the CFO will talk about things like consolidation, streamlining, workforce reduction, and all those other things. That gives you an indication of how much and what kind of change they are going to go through.
“The second question you ask is how many ERP or enterprise software packages do you have now, and how many do you plan on having by the end of the year? The funny thing we found in the data is that the more ERP instances you have, and the more ERP instances you’re going to have at the end of the year, that achieving those operational efficiency goals is less likely. So in other words, if somebody says I have 20 and I’m going to have 20 at the end of the year, they are not going to be as able to achieve and sustain those changes than the company that has one or two.
“So if some company says I’m really going to cut my costs a lot, then you better see that 20 coming down to three or four.
“The third area is then to provide your outlook on the IT budget. If the CEO or the CFO says, `We view IT as part of our SG&A (Sales, General, and Administrative) expenses, and our SG&A expenses were cut 10 percent across the board, that makes achieving sales goals riskier because IT is a significant part of the leverage needed to achieve cash flow improvements.”
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