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How CIOs Are Dealing With A Tough Economy

Plan A: no new hires, hold off on infrastructure upgrades; Plan B: an IT inventory to target discretionary projects.
TECH HAS AVOIDED THE BIG HIT
Like Vanguard, there hasn't been a knee-jerk reaction to slash tech in this downturn--at least not yet. Tech vendors' sales results haven't yet shown signs of a big spending cutback, says the manager of a technology fund at a major investment house. "On the edges you're starting to see weakening numbers," the manager says. "But we haven't seen that one quarter where everybody goes--holy [email protected]#%!"

Sometimes it takes some creativity to get critical projects done. Paul Valle, CIO of Papa Gino's Pizzeria, a restaurant chain in New England, tacked on some programming work to his IT budget this year to support an online ordering project. A third party is handling the online system, but Valle's IT group had to do the programming to integrate that system into the company's point-of-sale system so that online orders show up just like the customer ordered the pizza at the front counter. It was "a significant piece of work," he says.

Papa Gino's is feeling the effects of the economic slowdown just like every other restaurant chain in the country, Valle says. For that reason, the new project demonstrates to him upper management's continued commitment to IT. "The point being, they didn't cut anything else so we could afford to do this," he says.

Swinerton, a commercial construction company in San Francisco, "bumped up" its IT budget at midyear by $350,000, says CIO Larry Mathews, to upgrade its cooling systems in the company's data center and for a new wiki-based knowledge management system so "operational people in the company can share their construction knowledge with the rest of the company." Despite the challenges in its market and locale, Swinerton has been winning contracts lately--Mathews suspects because some competitors considered those contracts too risky or didn't bid because they're having financial problems.

Mathews expects his 2009 IT budget to stay flat with 2008's new bumped-up budget. Still, all operational groups, including IT, have been asked to consider what they'd do if they needed to cut their budgets by 10%, Mathews says.

That's where Plan B comes in. Plan B for Mike Cuddy, CIO of Toromont Industries, a Canadian dealer of construction and power equipment, involves putting on hold "discretionary" projects, ones where it's "not essential they be done now or in three months," he says, such as porting an 8-year-old application to .Net 2.0.

"There's no panic," Cuddy says, but there's concern. All major IT projects agreed on last year are going ahead, and he hasn't had to cut his IT budget, which is "a little over 1%" of revenue. But he's looking at the total list of initiatives with an eye, if things do tighten up, to pushing those that have "a shortened payoff period" and deferring those that don't, such as the company's upgrade to Windows Vista. "That would be a candidate we would defer," he says.


Mike Cuddy, CIO of Toromont Industries

It's a good time to plug cost "leaks," Cuddy says
There have been no cutbacks to IT in fiscal 2008 at ASCO Power Technologies, a division of electrical products manufacturer Emerson. But director of IS John Connelly thinks fiscal year 2009 could be different. "We're being very cautious about projects in 2009," he says.

ASCO makes AC/DC power products, and while some customer segments, such as health care, are "still moving along," orders in other segments are starting to slow. Emerson's fiscal year ends Sept. 30, and the company is beginning next year's budget process now.

Connelly suspects Emerson will put on the back burner a project to consolidate a mishmash of ERP applications at some 70 divisions onto Oracle. The company would recognize savings in about 10 years by standardizing on Oracle, Connelly says, but the project will cost at least seven figures for his division alone, so he predicts it will be shelved for a year or so until the economic climate improves.

For now, Connelly's 2009 budget proposal "has everything I need," including accommodating the Oracle project. However, Connelly also expects that his division's 30-person IT team will have to make do with current staffing in the coming year, including not replacing a person who recently left.

That's of a piece with our research. Of those cutting back on IT, almost three-quarters say they're not hiring new IT staff. Yet only a sliver, 7%, are being asked to cut IT people. More common (17%) is eliminating third-party consultants. However, the majority of respondents (57%) say they aren't being asked to cut staff or consultants. In our March survey, the figure was 63%.

chart: In response to concerns about the economy, are you being asked to ratchet back IT spending?
Sean Finley, deputy director of IT at ABM Industries, doesn't expect his 38-person IT staff will grow next year, but he thinks he'll be able to replace people who leave. ABM, a $2.7 billion facility services company, has been growing through acquisitions, and that requires an investment in IT, Finley says. His company, which provides janitorial and other services, is in the budgeting cycle for next year, and while other parts of the company might be asked to scale back, IT won't, he predicts. "IT has become like a utility. You have to spend on it. It's not an option," he says.

In fact, Finley predicts spending on IT will be slightly higher next year, mostly because of the continued rollout of a new payroll system and an ERP upgrade, both of which are four- to five-year projects that the company is only halfway through. "You can't stop midflight," he says.

But the economy is affecting ABM. Rising fuel prices affect its mobile workforce and raise airfare costs for executive travel, just as the company is in the process of relocating from the West Coast to the East Coast. Also, a lot of IT is outsourced to IBM, Finley says, so ABM staff travel east frequently to meet with the vendor.

As a result, ABM has been getting a lot more use out of videoconferencing services provided by Glowpoint. "We got videoconferencing right after 9/11, and it was helpful then when travel was difficult, but we're using it more now," he says. Finley uses the system "about twice as much as before, a least a few times a week" to communicate with fellow employees, IBM contractors, and others, he says. ABM has had Glowpoint install additional circuits to support the heavier use of videoconferencing. "Also, more people are telecommuting, so we've had people add home offices," he says.

chart: Which types of projects or investments are you most likely to scale back?

Editor's Choice
Brian T. Horowitz, Contributing Reporter
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Sara Peters, Editor-in-Chief, InformationWeek / Network Computing