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12/16/2010
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The Morphing IT Budget: It's About More Than Opex

Buying computing resources as services shifts expenditures from capital to operating. What does that mean for CIOs and their financial clout?

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Research: The Morphing IT Budget There's fundamental change coming in how IT organizations spend money. The biggest shift is from capital to operational expenses, but the buck doesn't stop there. Respondents to our InformationWeek Analytics IT Budget Survey are increasingly focused on calculating per-transaction service costs and implementing chargebacks. CIOs are aware that business executives know technology and that corporate IT is no longer the only game in town.

Concerns that internal initiatives, and the CIO's clout, will be gutted and most funds redirected to the cloud are overstated--for now. But we are at an inflection point: IT has money to spend, but it can't be allocated using the same old budget process that's kept us in a rut of dedicating a third or more of our resources to keeping the lights on. Business leaders have little patience for high-priced, long-term IT slogs. They've seen massive 18-month projects fail and experienced success with lightweight software-as-a-service offerings.

CIOs must look at each expenditure and think, "Will this buy us flexibility and advance the business?"

"In the current environment, it may be that you have to spend money to make or save money," says Art Coviello, president of RSA, the security division of EMC. "Some capital expenditures will let us move to a more opex-centric cost structure." One example: buying new, higher-capacity equipment and virtualization software as CIOs undertake data center consolidation projects in preparation for adopting cloud services.

This all sounds reasonable, yet there's a weird cognitive dissonance between how the IT pros we surveyed perceive the financial landscape--in a word, bleak, with layoffs, frozen positions, furloughs, and hacked line items--and the reality that 45% of the 422 respondents to our October IT Budget Survey will see increases in fiscal year 2011, compared with 24% expecting decreases. Our November InformationWeek Analytics Outlook 2011 Survey shows an even brighter picture, with 55% of those 552 respondents expecting increases vs. 19% facing cuts.

Why the disconnect? Mostly, we haven't yet figured out how to navigate a new budgetary environment, one peopled with executives who are much more savvy with technology, what it costs, what it can do, and different ways to pay for computing resources.

Our top-line advice: Internalize the notion that there are no technology projects, just business projects with technology components. Given that, it's clearly critical to identify how any given IT activity supports the business. However, just 16% of our respondents align their budgets with a service catalog. For those smart few, when a request comes to cut the IT budget, they can simply ask, "Which business service do you want to give up?"

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