DecisionSupport: Tailor IT Spending For Today's Lean Times
IT should take the lead in the prioritization efforts many companies are undertaking.
Stock prices were up during much of 2000, companies' revenue soared, and the main concern for business and IT professionals was missing E-business opportunities. Fear of being left behind was substituted for business analysis. Projects were initiated quickly, with limited forethought.
Now, many of those E-business projects are deemed failures, as are many of the companies founded to take advantage of the expected spending. With the difficult economic climate, the focus has shifted to ruthless prioritization and maintaining capital.
IT should take the lead here. There are some clear imperatives that can help maximize your IT portfolio and future technology investments.
Realign to business objectives. Are your infrastructure and application plans in sync with changed business priorities? Projects that were initiated when business opportunities were expanding may need to be re-evaluated in light of changed business conditions. The previously calculated value associated with these projects may have changed considerably, as value is only created when there's alignment among business goals.
Identify the technology-business value link. Many IT systems will require changes in business processes to capture the potential value created. Identify the key links between the technology solution and business processes and their associated business-line owners. IT professionals must engage in dialogue with the business units and place metrics around what the units consider valuable. Such dialogue will tend to temper the one-dimensional quest for cost reduction. Try to understand how much the business units value time to market, transaction-processing cycle time, and performance levels. This will ultimately suggest a balanced approach to "selling" and setting expectations, then measuring the ensuing project to determine success.
Use economic stress as an opportunity to increase technology absorption. Tight times can be an opportunity to increase the absorption within a company in a way that increases the return on investment for already-acquired technology. This environment provides a somewhat draconian impetus to force the absorption of other installed technologies, such as greater reliance on existing enterprise resource planning applications, knowledge sharing and collaboration, document management, and procurement systems. Imposing business rules that increase the automation of functions or leveraging of existing resources, under the guise of cost savings, can increase business benefits.
Invest in strategic flexibility. As we look to pull out of these volatile times, the flexibility of a business will be paramount. Cutting costs too deeply in the short term will increase the time required to react to future business needs. As opportunities to expand markets or release new products and services develop, the customer-facing departments, such as marketing and sales, will look to expand opportunities. IT changes shouldn't inhibit future business acceleration. IT organizations should invest (or protect current investments) in areas that will create or maintain technological flexibility and growth options. Quantifying and communicating the value of these options will show management their value much more than qualitative statements.
Consider vendor risk. The true question in managing vendor risk isn't, "What's the likelihood that this vendor will go out of business?" but rather, "What are we willing to pay for an increased level of safety?" There's a balance point in the consideration of trading cash for risk minimization. When does one spend 10% or 20% more for the same product from a vendor perceived to be safer? When does one settle on 10% or 20% less functionality from a big stable player rather than a riskier or niche player? It's easy to say, "Only go with the safe vendors," but this would potentially be an inefficient use of scarce resources.
Manage IT-business effectiveness. Review ongoing and recently completed initiatives against a project's initial budget, from both cost and business-value perspectives. Continual tracking of key metrics in a business case that's used to justify the investment will indicate the effectiveness of the project and allow IT to prove its value. Any wide discrepancy should be identified and managed like any budget variance.
Communicate. Clear communications, centered on the financial impact of IT initiatives and business decisions, will focus spending and resources and best position a company to emerge from tough economic times.
Robert K. Weiler is chairman, president, and CEO of Giga Information Group Inc., a global technology advisory firm. You can reach him at firstname.lastname@example.org. Chip Gliedman, a Giga Research Fellow, also contributed to this column.
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