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IT budgets took a hit this year, but there's an upside to the downturn

It's been a bleak year for I.T. spending. As the economy continued to sputter, many CIOs decided not to use all their funds, while others wrestled with budget cutbacks. Yet some business-technology leaders say the exercise in thrift helped them plan smarter and squeeze more out of existing systems.

The boom days of IT spending seem far away now. In a recent poll of 225 CIOs conducted by Morgan Stanley, 58% didn't spend as much in 2002 as they'd planned to at the beginning of the year. More than 40% pared back budgets at some point in 2002. Business-technology executives are heading into the new year with similarly conservative expectations: InformationWeek's December IT Confidence Index is down 8% from September and 24% from June, when people were optimistic about an imminent turnaround. The index provides a snapshot of attitudes toward the economy and its impact on IT spending.

FLYN GROPACK

R.R. Donnelley Financial has a lot of initiatives ready to be launched if the economy turns around, Gropack says.
R.R. Donnelley Financial, the financial-services arm of printing company R.R. Donnelley & Sons Co., cut its IT budget midyear, when it became clear that the expected recovery hadn't arrived. "Last year at this time, we were forecasting a soft first half and a planned recovery in the second half, but we didn't see that happen," says Flyn Gropack, VP of technology management. The company heads into 2003 with a flat budget compared with its final 2002 budget after the midyear reduction.

Grant Thornton LLP didn't spend all of its $16 million IT budget. The accounting firm saved a half million dollars, partly by consolidating Internet services across 51 offices and installing a voice-over-IP network that shaved off $20,000 a month in long-distance charges. Saving money is the corporate mantra, says Dave Johnson, director of technology, and any move IT makes must cut costs and aid customers.

It isn't surprising that many companies have underspent their initial 2002 IT budgets, says Eric Berg, CIO and VP of E-commerce at Goodyear Tire & Rubber Co. "If a company isn't hitting its financial commitments, you look for places to save, and IT is one of those areas that's expected to do its share," says Berg, who declined to comment on Goodyear's own IT spending for the year.

Adrian Danescu, CIO at Manufacturers Bank of California, a subsidiary of Sumitomo Mitsui Banking Corp., didn't get caught in a budget squeeze. To ensure that he'd have funds to build a cash-settlement system for online marketplaces that would open new revenue streams for the bank, Danescu did hardware-upgrade buying in 2001 and took control of the bank's facilities and purchasing budgets so he could renegotiate maintenance contracts and equipment leases and influence major non-IT purchases.

Danescu's budget will be less in 2003 than it was this year, but he doesn't expect that to disrupt his technology goals. "When you have achieved savings and can still move forward, you realize that you can keep moving forward with IT and not increase your budget," he says.

Tight budgets aren't inherently bad. They can drive careful planning to wring more value out of existing implementations, as well as better use of IT funds for new purchases, says Steven Sanazaro, who works as a contract CIO at executive outsourcing company Tatum CIO.

Down times also mean IT buyers can get more for less. OneUnited Bank this year spent all of its IT budget, which was cut by 10% partway through the year, and the bank's 2003 IT budget will be three-quarters of this year's, VP of IT James Barry says. He cut the 2003 budget not so much because he had to but because he could. The bank took advantage of turbulence in the telecom sector to renegotiate its contract with WorldCom, cutting telecom costs by 30% in 2003.

Laef Olson never leaves any of his IT dollars unspent. But then again, the chief technology officer at Cars.com, an online classified listing service, never asks for more than he needs. That forces him to concentrate on the most essential IT initiatives for the company, and it also earns him the respect of his business colleagues. "If you shoot straight year to year, management tends to listen to you," he says.

At the same time, management is rewarding some CIOs who come in under budget. It's not uncommon these days for CIOs to hesitate on tech investments that they're at all unsure of or to rethink the value of investments they thought necessary just a year ago, says John Roy, technology strategist and enterprise storage analyst at Merrill Lynch Equity Research. "In some cases, they'll get more bonus if they underspend," Roy says.

But smart companies are aware of the risks of being cautious with their IT budgets to the point that they miss opportunities to gain competitive advantages over rivals. R.R. Donnelley's Gropack says that if the economy picks up, the financial-services division is ready to speed up the development of a digital content-management system to make it easier for Donnelley's mutual-fund customers to manage financial information for marketing and regulatory purposes. Says Gropack, "We have lots of initiatives that are on the drawing boards waiting to be launched." -with Martin J. Garvey, Larry Greenemeier, Marianne Kolbasuk McGee, and Rick Whiting

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