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Pop quiz: More than 3% of U.S. GDP is spent each year on which specific national need? Enhancing R&D? Improving education? Securing our borders?
Nope. Answer: Combating corrosion. In fact, the Department of Defense alone now spends about $23 billion a year to protect its ships, aircraft, artillery, and other systems from rust and other corrosive agents, according to the Advanced Materials, Manufacturing, and Testing Information Analysis Center. The DoD even has its own Corrosion Office to direct "multiple thrusts in corrosion research and development, training, outreach, and policy, using existing organizations and talent within government, industry, and academia to implement its mission," the AMMTIAC says. That's a lot of folks worrying about gunk.
And you thought IT organizations had a legacy-systems spending problem.
My point isn't to suggest that this anti-corrosion work isn't critical. It is. But if organizations, from the gigantic DoD to the small IT department, don't make an effort to get their maintenance spending under control, it will start to eat them alive. How many IT organizations have lapsed into small-scale Corrosion Offices—focused on making incremental improvements and keeping their systems up and running, but not so great at investing in growth and innovation?
Based on conventional metrics, the tech economy is poised to continue its recovery this year. Our InformationWeek Analytics Outlook Survey of 552 IT pros finds that 55% of respondents say their companies will increase IT spending this year, while only 19% plan to cut IT spending and 26% plan to keep it flat. Overall, IT spending will increase 7.5% in the U.S. this year, 7.1% globally, Forrester Research forecasts.
But the true measure of enterprise IT vitality and vibrancy will be whether CIOs get serious about rebalancing their spending mix, devoting a larger percentage of their budgets to areas of high business growth and innovation and a smaller percentage to ongoing operations and maintenance. Without that strategic reprioritization of spending, the additional IT budget dollars will go only so far.
Despite the uplifting IT spending numbers, there's reason for pause. Our Outlook survey indicates that IT organizations remain way too tactical. Less than 10% of respondents to our survey said their organizations excel at driving innovation or revenue growth, for example, and only 20% see them as a "business driver." Respondents said they're better at providing high-quality systems and services and running efficient operations.
There's another name for that kind of proficiency: cost center. IT organizations that spend most of their time and money on operations and maintenance are the business equivalent of the Corrosion Office.
In a recent research note, Wells Fargo Securities senior analyst Jason Maynard agreed, identifying "reconstructing IT" as the No. 1 priority on his top 10 list of big tech industry ideas for 2011. The mandate: Start doing something about the old 80/20 legacy/innovation spending "rule." Most CIOs who have had success reversing their organizations' spending mix have started with data center and application consolidation programs, but this effort goes even deeper.
Hewlett-Packard CIO Randy Mott, whose goal is to spend only 20% of his IT budget on operations and maintenance and 80% on growth initiatives (flipping the 80/20 rule on its ear), says IT organizations must start documenting what their people work on, not what they're assigned to, week to week, project by project. "If you don't have good information on what people are doing, I don't know how you make decisions to take an organization in a new direction," he told my colleague Chris Murphy two years ago, when HP was completing its IT overhaul.
It's long past time for this to be just a rallying point for consultants and analysts. All CIOs, in concert with their CEOs and CFOs, must be moving to restructure their IT spending mix, setting explicit timelines and goals.
The Business of Going DigitalDigital business isn't about changing code; it's about changing what legacy sales, distribution, customer service, and product groups do in the new digital age. It's about bringing big data analytics, mobile, social, marketing automation, cloud computing, and the app economy together to launch new products and services. We're seeing new titles in this digital revolution, new responsibilities, new business models, and major shifts in technology spending.