Running The Numbers
Companies hold different views on whether now is the right time to increase IT budgets, cut them, or hold steady
While General Motors, Overstock.com, and Schneider National all hope sales will grow in 2003, each company has a different plan for its IT budget. Trucking and logistics company Schneider plans to increase IT spending at least 20%, E-retailer Overstock is keeping its IT outlays flat, and automaker GM will likely cut back its technology budget.
Welcome to budget season 2003, where IT spending strategies vary as much as the colors of autumn leaves. Nearly half of the 300 business-technology executives answering InformationWeek Research's Priorities 4Q 2002 survey expect to increase IT spending next year, a third will stand pat, and 21% plan to cut spending. The biggest businesses are less enthusiastic: Only 39% of companies with more than $1 billion in revenue say they'll increase IT spending.
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IT budget strategies have grown more cautious. At the beginning of 2001, the same survey found that almost three-fourths of companies planned to boost IT spending and only 5% expected to cut. One reason for the change comes from top-line economic realities: Only about half expect their companies to finish this year with higher sales than they had in 2001, and 25% predict revenue will shrink. That's the worst outlook of any of InformationWeek's four Priorities surveys this year.
Lofgren considers the weak economy a chance for smart companies to grab market share. Schneider, a privately owned business with $2.4 billion in annual sales, forecasts significant growth in 2003. One technology-enabled initiative, selling logistics services, has grown 40% annually during the past three years. The business provides outsourcing services such as shipping management and payments, and sells on a hosted basis the logistics-management and -analysis application it uses. Schneider is rewriting most of its main applications -- nearly all of which it developed internally -- to improve its ability to integrate supply-chain systems with partners so shipping customers can better track information, material, and payments through Schneider's systems. About two-thirds of the increased IT spending will go for developers; the rest is earmarked for hardware and software.
In our survey, eight in 10 executives say increased collaboration with customers is a key IT-enabled business priority for the fourth quarter. And it's the kind of technology effort that Schneider managers are weaving into business units' three-year plans. Pressure is being put on business managers to get involved with technology planning. Technology executives "are here to help you, but it's not their job to run your business," Lofgren says.
Clearly, Schneider is a member of the grow-the-budget camp. E-retailer Overstock belongs to the group that's holding the line on IT spending in 2003. How can a business grow without spending more? Many companies built excess capacity into their IT infrastructures during the technology boom to accommodate continued growth in Internet traffic and E-commerce transactions, which didn't grow as fast as expected. "We built it in such a way that there's no need to expand even though we expect to grow sales," says Doug Greene, Overstock's chief technology officer and VP of marketing. "We're kind of overengineered at the moment."
Overstock, which had about $87 million in gross sales in the past year, boasts an IT architecture that matches its business model. Overstock exists because other companies' forecasting fails: Manufacturers make too much or retailers buy more than they can sell. Overstock sells the leftovers online at bargain prices, which lets it offer deals such as goose-down comforters for $39 or Dell PCs for less than $300. The company's lifeblood for understanding customers is an Oracle9i database running on HP-UX N-class servers that are designed to store every click that customers make on the Web site.
But Overstock's business is given to huge peaks and valleys, depending on a promotion's effectiveness or what kind of merchandise is in stock. Spikes can soak up all of the company's excess capacity, so Greene programmed a way to scale back the amount of computing cycles consumed by the resource-intensive click-tracking system. As more resources are needed to handle sales, the system reduces its demands by sampling clicks instead of recording each one. Ultimately, if its servers are swamped, Overstock will use outsourcer Akamai Technologies Inc. to deliver cached pages instead of using its own application server to build pages.