March 05, 2001, 11:16 AM — Last year, the bubble burst for many dot-coms when they learned that profits really do matter after all. Now, weak spots are showing up in a much broader swath of the U.S. economy, and IT executives are coming under increased pressure to cut costs and speed up the delivery of revenue-enhancing technologies.
Even CIOs operating under generous budgets set last year when the economy was robust say they're reprioritizing projects and looking for ways to trim operating expenses.
But several senior IT managers interviewed by Computerworld who have seen the budget ax before say they're shrugging off renewed pressure to meet short-term financial goals. Some even say the pressure is a good thing. "It makes people rethink and rescale what it is they want to do," says Allan Ditchfield, an independent IT consultant in Marion, Mass., and a former CIO at the Progressive Corp. in Mayfield, Ohio.
Pressure on companies to improve short-term financial performance often leads them to avoid long-term "big-bang" projects -- such as enterprise resource planning rollouts -- that have high failure rates, Ditchfield says. "A project squeeze helps you keep focused on what's real and what's desirable," he explains.
Projects that will receive funding priority in the coming months include those with a high likelihood of making quick improvements to a company's bottom line, says Thornton May, chief awareness officer at Guardent, an information security consultancy in Waltham, Mass.
"There's a flight to quality," May says. "The economy is slowing down, and there's the sensitivity that you have to spend smart."
Christopher Horrocks, a vice president and CIO at Selecterra, an online business-to-business marketplace in Chicago, says CEOs are right to demand that IT projects meet clear financial goals.
"If you can't estimate, with some statistically provable likelihood, what the payback on a systems investment is going to be, I wouldn't touch it with a barge pole," says Horrocks, who has advised more than 200 corporations as a consultant.
In his view, Horrocks says, public companies should be required to report major systems changes to the U.S. Securities and Exchange Commission. "A company tends to be very exposed during that period -- rather like a soft-shelled crab," he says. Such a public reporting rule would encourage greater involvement among senior management in IT planning, he explains.
Mix It Up
Honorio Padron, the president and CEO of Exelon Business Services in Chicago, says it's important "to have a mixed bag of IT projects in the hopper -- things that will produce quick returns on investment, and also projects that will deliver the long-term results you need." Exelon Business Services provides support to the business units of Chicago-based electric utility firm Exelon. Padron, a former CIO at Dallas-based CompUSA and Miami-based Burger King, says the prioritization of investments that goes on in every budgeting cycle should include a hard look at systems that could be eliminated.
Panasonic Industrial's Japanese parentage (Matsushita Electric Industrial)brings with it a slightly longer-term view than that of most U.S. companies, says Bob Schwartz, president of Panasonic Management Information Technology Services in Secaucus, N.J. For example, Panasonic will approve IT projects with returns as far as three years from their implementation dates, he says, whereas U.S. companies typically look for a return within 18 to 24 months.
Sometimes IT projects are just deemed necessary. Some IT infrastructure upgrades and enterprise applications have been undertaken without "rigorous analysis for return, but rather to position the company for the e-world," says Schwartz.
For example, he notes, Panasonic underwent a major overhaul of its network infrastructure when it migrated from an SNA-based network to an IP-based system.
"The investments were approved based on the technical merits and the capability improvements they would bring rather than by a classic [return-on-investment] assessment," he says.
Tricks of the Trade
IT planning and budgeting holds a number of pitfalls -- for IT managers and general managers alike, Ditchfield says.
"Some companies have blinders on. They ask what it's going to cost to have this done, but nobody asks how much it will cost to operate it," he says. "The CIO has to have an understanding with the user counterparts that this thing ain't coming just for the development cost."
Ditchfield also cautions IT managers to recognize that financial pressures demand that they pay attention to political as well as fiscal matters.
"The CIO may think he or she is doing a great job, but there's this seething resentment in the corporation because you're spending money like hell and they are firing people out the door," he says.
