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9/20/2002
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InformationWeek 500: A Tough Climb This Year

Faced with slashed budgets, tech innovators have had to get more creative to stay ahead

It's been the kind of year in which even the technology leaders that make up the InformationWeek 500 are spending less on technology. Companies on this year's list budgeted 34% less on average than those on the 2001 list. To keep making progress, the nation's top technology innovators have had to find creative ways to invest, redistributing money to make computer systems communicate better, improve data-analysis tools to parse business results quicker, and squeeze more revenue--and profit--from electronic channels.

As part of that effort, they're sharing business data regularly with customers and suppliers, connecting more storage systems to speed data collection, making modest strides in securing data against hackers, and trying to keep technical staff motivated in a bad economy. At Eli Lilly and Co., the $11.5 billion-a-year drugmaker whose products include Prozac, IT is helping researchers do their work more efficiently. This year, the company deployed a global electronic library of chemical and biological data to speed research on drug compounds, a system for generating Web-based computational models of compounds, a high-speed gene-sequencing analysis tool that compresses a four-hour process into five minutes, and software for acquiring and processing drug-screening data in half an hour instead of five. "It's all about numbers and wires, but this isn't going to make a significant difference if [systems] aren't well planned and executed," CIO Roy Dunbar says.

SAN USE GROWSThe InformationWeek 500 list ranks U.S. companies with $1 billion or more in annual revenue based on patterns of technical, operational, and organizational innovation.

InformationWeek 500 companies spent about 3.4% of annual revenue on IT this year, which might not seem like a huge shift from last year, when they earmarked 3.9% of revenue for IT budgets. But with sales shriveling, IT spending is sharply lower in absolute dollars among this year's group, to an average of about $320 million per company, compared with nearly $484 million last year. Financial-services companies still spend the most, at 7.6% of revenue on average, with media/entertainment and electronics companies spending more than 5%.

InformationWeek 500 companies say they'll spend 20% of their IT budgets on new products and technology this year, 18% on consulting and outsourcing, and 21% on software applications--all higher percentages than last year, though the dollar amounts for each are smaller. Companies are cutting back on research and development, to 2.5% of IT budgets from 4.5% last year. Salaries and benefits are also down, accounting for about 28% of IT budgets, compared with 33% last year. Put another way, InformationWeek 500 companies will spend an average of $7.9 million on R&D this year, down from nearly $22 million a year ago, and allocate $89.3 million for salaries and benefits, down from $159.7 million. That stings. "If you treat innovation as a luxury, it will be the first thing tossed overboard in difficult times," says Larry Stofko, assistant VP of IT strategy and architecture at St. Joseph Health System, which operates 15 hospitals in California and Texas and has $2.4 billion in annual revenue. St. Joseph is trying to focus on small projects that can lead to significant improvements in business--optimizing existing systems, enhancing clinical systems that eliminate nurses' paperwork so there's more time for patients, and using the Internet to give doctors better patient information. "Little things add up, and some things turn out not to be so little," Stofko says.

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