Cost Management 2002: Can Strategy Thrive in Tight Times?
- 80% of IT execs say they can still meet strategic goals despite constraints.
- 82% say communication on IT spending with business units has improved.
- 33% of large companies don't manage IT costs successfully.
- 9% of IT spending in the past 3 years was unnecessary.
Times are tough: Between the recession and the hangover from the Y2K and dot-com spending frenzies, most CIOs are expected to manage IT costs much more tightly than they have in the recent past. And the majority of the 357 IT executives we surveyed for this month's research believe they're doing a good job. For the most part, that seems to be true: They've reduced both the number of projects over budget and the percentage of IT spending over budget since 2000, and they've done it without sacrificing their strategic goals. What does it take to do it well? Judging by the habits of successful IT cost managers, communication between business units and IT and strong decision- making processes are what make for success. Confident cost managers are also more disciplined: They're better at executing the cost management processes that work for themmost notably collaborating with their peers on the business sideand better at using technologies, especially project management software, that help in the process of managing costs.By Gary A. Bolles
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: How Do You Make Better Cost Decisions?">
Analysis: How Do You Make Better Cost Decisions?
CIO Toby Keeler is going to more meetings than he did two years ago, but he isn't complaining. They have helped him reduce the IT budget by 15 percent at Osmonics Inc., a $207 million water filtration equipment company in Minnetonka, Minn., without sacrificing any essential projects.
Most of our respondents pointed to "improving internal decision-making processes" as an effective way to manage costsmore than any other responseand we asked several CIOs and cost management experts how to do that. At Osmonics, the process, developed over the past two years, is fairly simple. Prior to a mid-year strategy session with other top execs, Keeler pulls his IT staff together to answer three questions: Are we lined up with where the business is going? What new technologies are out there? Can they contribute to the company's strategy?
"This is just back to basics," Keeler says. "It's doing what we should have been doing all along. There was so much panic in the dot-com frenzy that companies threw fundamental practices out the window. Two years ago it was spend or fall behind. Now, a project has to be scrutinized to make sure it meets a real business need. To do that, you have to have businesspeople coming to the table owning both the project and the results, and you need IT people saying what it's going to cost." Recently, Keeler tempered business-side enthusiasm for a CRM initiative with pointed questions about what it was meant to solve. The result: a pilot project limited to sales force automation rather than a sprawling initiative.
Keeler's experience illustrates two insights about successful decision-making. The first is that communication is critical. When we asked Ric Hughes, partner leader of IT solutions at PwC Consulting, to characterize companies that are skilled in decision-making, he said, "They tend to communicate very openly about IT objectives and costs."
Alan Boehme, the Atlanta-based CIO of Best Software Inc., says communication must occur among suppliers, vendors and employees. "And if you have a customer-facing application, you'd better involve customers as well," he says.
Communication can be face-to-face or written, Boehme says, depending on the culture of the organization. Enhanced project management tools in the future may help these discussions, but Boehme believes too many companies engage in documentation overkill, which slows things down. What needs to be communicated? Everything about a process that IT will support, he saysthe personnel, system, implementation and lost opportunity costs, for example. And what is the cost of delaying a project?
CIOs often overlook the team of employees who maintain systems, says William Ulrich, president of Tactical Strategy Group Inc. in Soquel, Calif. "Let's say I'm a CIO, and my direct reports decide to purchase a [new] system," he says. "If I don't have input from the people in charge of my current system, I'm missing information on how it might meet our needs without buying a new one. These people might know how to retool."
Time and again, he's seen companies missing the savings they hoped for when lower-level employees weren't encouraged to speak up. "It's almost Dilbert-like," Ulrich says. At one federal agency, managers ordered rewrites on three subsystems, but they were highly interlocked with other subsystems under the control of different managers, who weren't consulted. Employees could see a train wreck coming, but it didn't become apparent at the top for another 12 monthsand $1 million.
The second insight from our respondents and experts is that when it comes to managing costs, the business acumen of the CIO counts for more than technical wizardry. "Successful cost management is basic blocking and tackling," Hughes says, "but it's by seasoned veterans who really understand the business."
On his way to the CIO chair at Osmonics, Keeler came up through the business side, gaining experience in manufacturing and sales. "I don't say, 'This new technology is a great IT solution, so let's go use it somewhere.' I ask, 'What is the real business problem?' Maybe the answer is changing the business process, and that involves very little IT support. Or I can say, 'Here's a new tool that will work, and here's how we can control the cost of implementationwe only need 10 percent of this tool.'"
Boehme agrees that good decisions on cost management start with business savvy. "A CIO has to be married to the business," he says, "and take technology as a mistress."Terry A. Kirkpatrick
How the survey was done: CIO Insight designed the business process survey together with Advantage Business Research Inc. (advantageresearch.com), a Lake Success, N.Y.-based supplier of custom research services. IT executives gathered from a number of sources, including third-party lists and other Ziff Davis Media publications, were invited to participate in the study by e-mail. The questions were posted on a password-protected Web site, and 357 qualified respondents (172 from companies with 1,000 employees or more, and 185 from companies between 50 and 999 employees) replied from July 16 to July 23, 2002. All qualified respondents described themselves as knowledgeable or very knowledgeable about their company's business processes, and held one of the following titles: CIO, chief technology officer, senior and executive vice president of information technology or information services, vice president of information technology or information services, or vice president of IT strategy, planning, networking or communications.