CEO 'You're Fired' Threat, Part 2: McKinsey Pushes Maintenance Cuts

Just three days after we posted our "Letter From CEO: Cut Maintenance To 60% Or You're Fired," McKinsey has released a big study saying that CEOs, CIOs, and other executives want to spend 40% of IT budgets on customer-focused investments but can't find the cash to do so. Enough already: it's time for CIOs to declare all-out war on the 80/20 monster.While the McKinsey analysis of its survey results doesn't break much new ground, the impact of the McKinsey name tied to a study specifically calling out the 80/20 ratio as a barrier to enhanced competitiveness will surely raise this issue to an extremely high priority for CIOs in 2009. (In many IT budgets, 80% is gobbled up by maintenance, leaving only 20% for innovation.)

My colleague Marianne McGee outlined the major McKinsey findings in that news story posted yesterday, and CEOs desperately seeking to unlock growth strategies in this difficult economy are going to seize onto those recommendations and not let go. McGee wrote:

I think they've nailed it with that title, "IT's Unmet Potential." Great skills and ideas and energy and talent abound in many business-technology organizations, and surely those teams have the ability to deliver huge business value for their companies and for their customers. But they can't do it without funding, and the funding is all tied up in constipated maintenance budgets that give new meaning to the term "perpetual."

As I wrote in that recent "Letter From CEO: Cut Maintenance To 60% Or You're Fired":

In McGee's news story from yesterday, McKinsey's Roberts says many companies have realized that the drastic IT budget cuts they made earlier in this decade have come back to haunt them as the short-term savings didn't come close to covering the lost value that those people and budget dollars could have contributed to productivity and cost-control. As an example, Roberts says an IT investment in a new pricing system that more accurately calculates the best price and discounts for goods sold could generate a return "five times" greater than the IT cost, McGee wrote.

I haven't seen the full McKinsey report, but from the tone of what the authors said in McGee's piece, I don't think McKinsey has grasped how serious and how urgent this situation is. Some CIOs will realize the risk they face in tolerating another year or two with most of their budgets wasted in the expensive and no-return maintenance bucket, and they'll find ways to shift many of those dollars from that do-nothing category to the customer- and business-driven side of the ratio. And those companies will be the winners. The rest? Well, would you accept a job with a company that thinks 80/20 is just fine?

CIOs, buckle up. It's time for war.