Reining In IT Budgets

CIOs use IT spending as percentage of revenue to gauge but not determine corporate tech budgets.
Steve Brown, CIO, Carlson Companies: I agree with the general thesis. However, Carlson Companies has always required accountability metrics with respect to any capital investment. Although difficult to find for a pure services company, we also adhere to the premise of measuring IT and all functions against best-in-class metrics tied to spending as a percent of sales.

We use other metrics as well, such as IT spending per employee and cross-reference the data against Hackett, ComputerWorld Research, Meta, and other sources. Our Shared Services group annually benchmarks its services catalog against 36 competitors with respect to price and availability.

Thomas Topalian, Director, Global Crossing Ltd.: The evolution of IT budgeting, to a large degree, has become more strategic in terms of how the investment directly impacts the business. In the past, large enterprise systems were purchased for reasons of Y2K preparedness and enterprise-resource planning. Today, those reasons are not sufficient to justify the investment. Rather, IT spending is tied to an increase in productivity as much as it is tied to creating a compelling and differentiated push towards making a company more competitive and agile.

Specific to IT budgets and limitations, our IT spending as a percent of revenue is significantly lower than the industry average because our IT infrastructure and components are totally aligned with our business priorities. As a result, we are able to provide IT services more cost effectively and efficiently because all of our demands outside of normal support-process engineering are based upon prioritized business initiatives.

By this very nature, I don't think we intentionally limit our IT budget to only a particular [financial metric]; rather, we have focused our execution and subsequent development and support areas on only those areas that are strategic to our business priorities.

Finally, I would not be communicating the complete story if I did not state that part of the reason our organization is running so lean and efficiently is due to the recent reorganization process that helped us to identify and focus on only our strategic areas of strength.

We are already well below industry levels with an IT budget as a percent of revenue of 2.86%, whereas the average telecom IT budget as a percent of revenue is 6.1%. To the contrary, IT is so strategic in providing the agility and flexibility of a framework to which our company operates from that we have increased IT spending for 2004 proportional to strategic business decisions. Despite this increase, we still expect to be well below the projected industry averages.

David Muntz, senior VP and CIO, Texas Health Resources Inc.: We're a not-for-profit health-care system that has traditionally been compared for budget purposes to a percent of expense. That trend continues. More recently, large capital expenditures to upgrade the IT infrastructure and to invest in electronic health records have been excused from the calculation. We are expanding IT expenditures for the next six years (and have no plans to cut IT spending). At some point, however, Finance will expect costs to decrease.

Bob Egan, VP and CIO, Boise Cascade Corp.: We have kept our information-technology spending well below 1% of sales while providing highly-reliable and state-of-the-art applications and services to our employees and customers. The same thoughtful and systematic approach we apply to application design and technology selection applies to budgeting and governance.

We have not had large fluctuations in neither the total amount we spend on information technology nor in spending as a percent of sales. If you are careful about spending, you already have it where it should be. And, of course, the less you spend, the less room there is to cut.

Illustration by Marc Rosenthal

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