The New Reality for Customer Engagement
It's been tough out there, what with companies battered by the worst recession in 10 years and the economic fallout from the Sept. 11 terrorist attacks. And last fall's budget season arrived when the general feeling was at its gloomiest. Yet the results of this month's spending survey show that many companies bucked the trend, upping their 2002 budgets for IT spending. And many are confident that their budgets will hold through the year, and aren't just empty wish lists. But it's still unclear whether this is because companies feel they need to strategically position themselves for the hoped-for recovery or because they need the added capabilitiesand potential cost savingsoffered by the new IT systems.
Consider Argo Turboserve Corp., a privately held distributor of turbine and power generator parts based in Carlstadt, N.J. Many of Argo Turboserve's customers are in the hard-hit aerospace and nuclear power generation industries, yet the company plans to boost its IT spending 29 percent this year, to $1.8 million, with much of the increase going to new Web-based supply chain management systems that will help attract new customers. The lure? Argo Turboserve hopes to help customers better forecast demand so clients can order parts only when needed, thus cutting inventory costs, says Vice President of Information Systems and CIO Art Johnston.
Other companies are upping their budgets in hopes of preparing themselves for the recovery. As the economy slowed in the second half of 2001, the mandate for David Buzzell, CIO of The Sedona Group, a $75 million professional staffing firm in Moline, Ill., was "let's hold steady and keep costs down," he says. This year, Buzzell says, "it's just time to upgrade and get ready for the rebound of the economy." His $600,000 IT budget is up about 25 percent over last year, and the money will pay for a move to a new accounting platform, and to Web-enable some of its applications. That will help the company produce the customized reports and invoicing paperwork it prepares for its clients without the expensive manual labor now required, he says. The business benefits: reduced operating costs and new, better services for its customers.
Rochester, N.Y.-based Chase-Pitkin Home & Garden, a home improvement retailer with $275 million in revenues in 2001 and a division of Wegmans Food Markets Inc., is spending 8.5 percent more on IT this year to get more detailed, real-time information on product sales.
The chain has seen low double-digit sales increases for the first four months of 2002, says Controller and CIO Chris Dorsey. The Sept. 11 attacks actually helped business, he says, because of the "nesting factor"consumers seem to be spending less on travel and more on big-ticket home purchases.
However, faced with steep competition, retailers must "carve out as much waste as they can," says Dorsey. He is confident his spending increase will hold up because the chain needs new and upgraded IT capabilities to get the store-by-store and item-by-item information it needs to boost productivity and profits. The tough economic times, he predicts, will actually "put more of an emphasis on making sure that happens."
In some areas, such as the recession-resistant medical field, spending increases are even higher. The company owners at Panorama Orthopedics, a clinic and surgery center in Golden, Colo., believe "we've got to move forward," says CIO Christine Wilson, who reports that her IT budget is up 100 percent this year, to $1.2 million. The new funding will go to upgrade the firm's computerized imaging system and for a new electronic medical records system.
But scrutiny over IT spending is as strong, if not stronger, than ever, especially at organizations still under financial pressure. General Cinemas Theaters Inc., a Chestnut Hill, Mass.-based theater operator that was recently acquired by AMC Entertainment Inc., is playing "more of a devil's advocate role" on IT spending than in the past, says CIO Jim Barry, asking questions like: "Can we get a quicker return?" "Can we reduce expenses?" "What happens if we don't do it?"
The technology industry also remains tight. At Fortel Inc., a Fremont, Calif.-based developer of software that monitors the performance of networks, Web servers and other parts of the IT infrastructure, losses grew to $1.8 million for the fiscal first quarter ending Dec. 31, compared with a loss of $1.6 million one year earlier. Fortel is keeping its IT budget level at about $800,000 and cutting its maintenance costs for Oracle's business applications by 40 percent, says CIO Dave McCandless. Fortel is using Oracle Corp.'s accounts receivable module to do the work of the order entry module. "You lose some functionality, but you get the job done, which is to sell your product to your customer," says McCandless.
Even in companies with strong commitments to IT-based strategic change, the questions remain tough. IT spending at Zurich North America, a Schaumburg, Ill.-based provider of business insurance, part of Zurich Financial Services Group, will rise close to 9 percent this year, to $243 million, says David Patterson, vice president of governance for IT. Much of the increase is going to CRM, Web development, security and privacy-related projects, says Patterson, as part of a three-year overhaul of the IT infrastructure designed to make the financial services firm more efficient and profitable.
But even as spending on new projects rises, CFOs, corporate steering committee members and business managers at all levels are putting operational costs under a microscope. "Managers ask, `What if your capacity is growing? What are your internal labor rates, and how are they changing year over year? What is your cost per user?'" says Patterson.
Where there are genuine spending increases, security is one common item on the shopping list. Dorsey of Chase-Pitkin Home & Garden is spending more on security not only to defeat outsider hackers, but also to protect its internal data.
Another common area for new spending is to upgrade an organization's communications infrastructure. Companies also report spending more on storage. Argo Turboserve plans to boost storage spending 15 percent to 20 percent, says Johnston, to hold both e-mail and data produced by its CRM systems.
As the economy wobbles out of recession, CIOs and business managers are taking a harder, more business-like approach to IT spending than during the boom of the 1990s. For some companies, that means holding the line. For others, 2002 is the year to cautiously resume their investments in IT. "They realize that to make the money, they have to spend the money," says Panorama Orthopedics' Wilson. "In the past it's worked, and we're banking on it again."Robert L. Scheier is a freelance writer in Boylston, Mass.
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