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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.

There's no doubt the outlook's gotten gloomier the past three months. Forty-three percent of respondents to our recent survey think the country is in a recession; in a similar survey three months ago, 32% did. Only 4% now are convinced we aren't in a recession and aren't headed for one.

In terms of the general mood among IT workers, around half of respondents still characterize their IT organizations as "cautiously optimistic"--47% in the current survey, down from 53% in March. Those who see the mood in their IT shops as "fear and loathing" is up to 30%, from 24%.

Andrew Connolly, director of finance at R.R. Keller & Associates, is in the cautiously optimistic camp. R.R. Keller is a privately owned manufacturer of industrial and commercial construction products such as translucent panels used in skylights and windows. Connolly says the company hasn't felt the impact of the economic slowdown--yet. That's because the construction contracts it signs are usually looking out 18 to 24 months. For instance, R.R. Keller is involved with building the new Yankee Stadium, slated to open for the 2009 season. "We tend to lag the economy," Connolly says.

So, for now, his IT budget for this year, which is about 1% of revenue, hasn't been cut. In fact, spending is up a little with a new voice-over-IP project that was green-lighted earlier this month, a project that will cost in the "low six figures." The VoIP system will reduce telecom costs, and ROI still sells.

On the other hand, a planned implementation of 3-D modeling software is likely to be put on hold if the IT budget needs to be tightened next year. The company probably wouldn't feel the impact of a slowed economy until the second half of next year, and if it continues to expand its customer base and rack up sales in the meantime, the impact won't be too bad on IT spending. "I'd like to think it would be flat," Connolly says.

Flat has a good deal of company, with 28% of survey respondents expecting IT budgets this year to match 2007's. But the biggest percentage of respondents, 39%, say they're cutting, and those cutbacks could be significant: 19% say IT spending this year will be down more than 10%. A third say they'll increase spending, though just 9% expect it'll be more than 10%.

As for how they're accommodating the need to cut, 32% say they're being asked to cut a percentage of their IT budgets, 29% are being asked not to increase spending as much as planned, and 24% are being asked to cut specific projects.

Gary Scholten, CIO at Principal Financial, says the company's IT spending is down about 3% this year from what was originally planned. However, it's still up 6% from last year. "There's still healthy growth from '07 to '08," he says. The company is holding off on infrastructure upgrades and delaying a couple of security-related projects "that are still good to do, but not urgent," he says, but it continues to invest in IT for growth areas such as its global operations, which involves spending on collaboration technology and network enhancements.

The CIO of a retail chain in the Northeast says he's already decided not to upgrade the company's IBM iSeries computer this year, and he's put on hold a consolidation effort involving a "small data center" that does mostly online hosting. Also, he's not going forward with some data deduplication work. These are "investments that improve IT processes," and as such can be delayed without materially affecting the business, at least for a while, he says.

What he's not cutting are any IT projects related to customers: a couple of customer-oriented applications, the company's point-of-sale system, its in-store kiosks, and in particular its e-commerce efforts. Our survey respondents agree: Of those being asked to scale back IT spending, less than a quarter (23%) say they're cutting, or have cut, "customer-facing" projects. Forty-five percent are cutting ones that aren't customer-facing.

chart: How will your company's IT spending this year compare with 2007?

Interestingly, another 23% say they're not cutting any IT projects included in their original 2008 IT budgets, which may indicate a preference for seeking other ways to bring down their technology spending--such as reducing expenses related to infrastructure and personnel--rather than eliminating big projects. That helps explains why "new hires" and "infrastructure upgrades" score one and two on the list of projects or investments most likely to be cut back.

A high-level IT executive at a large financial services firm says his company has scaled back areas such as infrastructure and ramped up ones related to global operations, which will net an almost 4% reduction in IT spending this year. For a company the size of his, deferring "tactical" IT investments adds up to significant savings. "If we usually turn around Unix servers after 36 months, we'll try to squeeze out another four months," he says. "That doesn't make a big difference for one Unix server, but it makes a huge difference with 400 servers."

Even in the volatile financial services industry, not everyone's cutting. "We've been through lots of business cycles," says Paul Heller, CIO of the Vanguard Group mutual fund company. "We maintain the long-term perspective." The company spends about 30% of its operating budget on business technology, employing about 2,600 people in IT. 2008 IT spending hasn't changed from the original plan, and IT spending next year might even rise compared with 2008, depending on demand from the business units. Hot right now are online services to help individuals sort through Vanguard's 150 funds, based on factors such as their age and goals. Says Heller, "The last thing we'd do in [an economic cycle like this] is to react by cutting back on technology."

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