There appears to be daylight ahead for businesses as the credit crisis passes. So what now for CIOs?
According to Rudy Puryear, a partner at consultancy Bain the CEO-mandated cost-cutting in IT that was: "necessary for business survival," is now poised to create an even bigger problem as organisations overspend on IT in response to pent-up demand. This could add more complexity to IT operations and further strain the alignment between the CIO and the board.
Puryear has five questions that CEOs need to ask their CIOs right now. And CIOs will beed some good answers. Puryear says the intended outcome of the conversation is "critical for managing IT to win in the recovery."
1. Do we understand what we broke, and what is our plan to fix it?
There were plenty of valid business reasons for all the IT slashing and burning. "But I've seen a lot of actions taken that were necessary of business survival that got awfully close to the edge and have done two things," Puryear says. "Those actions destroyed some assets that businesses had been building for years, and they introduced unacceptable business risk."
As an example, Puryear says a client of Bain's backed off their IT refresh policies during the downturn. Its one thing to do that with laptops (stretching their life for another six to 12 months), he says, but this client did it with their servers. "They recently took a look, and it was something like 32 per cent of mission-critical apps were now running on servers that are not supported by a vendor anymore," he says. "In my view, it created unnecessary business risk."
The straightforward question to ask is this: What compromises did we make in the IT inventory and infrastructure that are no longer acceptable risks to the company now?
2. How do we get full potential from discretionary spending?
Puryear says, at typical companies, approximately 80 per cent to 90 per cent of the IT budget is locked in to non-discretionary funding, i.e. "business as usual": running, operating, maintaining, supporting and adding minor enhancements to the existing environment. Conversely, just five per cent to 20 per cent is discretionary.
Therefore, it's critical that companies be extra careful and strategic in how they choose to spend that money in the discretionary bucket. That's because those purchases will "set in motion 10 to 20 years of downstream cost" once they move to the non-discretionary budget in year two, he says. By his calculations, those downstream expenses for IT investments can end up costing four to 10 times the original capital outlay in the future.