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Companies will spend $2,700bn in 2012 on information technology products and services, a 3.9 per cent increase over the current year, according to Gartner, the IT research company.
“The days when IT was the passive observer of the world are over,” says Peter Sondergaard, head of research at Gartner. “Global politics and the global economy are being shaped by IT,” he says. “It is a primary driver of business growth. This year, 350 companies will each invest more than $1bn in IT. They are doing this because IT impacts their business performance.”
But outside the global big spenders, the uncertain economic outlook and spending constraints mean many IT departments face little or no growth in their budgets.
That hard fact creates a classic dilemma for chief information officers (CIOs) and IT leaders who know that business executives increasingly look to IT to drive growth and competitive advantage.
“In the current economic climate, companies are being asked to do more with less,” says Sanjiv Gossain, head of UK and Ireland operations at Cognizant, the Indian IT outsourcing company. “Existing spending is being scrutinised and reduced, and yet companies are expected to continue to innovate and grow,” he says.
He points out that a recent study of Europe’s boardrooms by Cognizant and Warwick Business School showed that, while outsourcing is still a large part of expenses in the IT department, the majority do not measure the financial impact that outsourcing-generated innovation has.
Nevertheless, two-thirds of chief executives still believe IT will make a greater contribution to their industry in the next 10 years than in any prior decade.
“For chief information officers to thrive in this environment, they must lead from the front and reimagine IT,” Mr Sondergaard says. “IT leaders must embrace the post-modern business, a business driven by customer relationships, fuelled by the explosion in information, collaboration, and mobility.”
More specifically, he and many industry CIOs believe they must seize the initiative and embrace new ways of doing things, such as cloud services and the consumerisation of IT, to meet the aspirations of their boardroom counterparts – while remaining within budget.
Mark Brewer, the long-serving CIO at Seagate, the hard-drive manufacturer, agrees. But he cautions that moving IT processes to the cloud does not always save money. He suggests cloud-based outsourcing can free internal IT resources to used on project work, rather than the routine maintenance that typically consumes so much time.
“I think all IT departments need to ask themselves: ‘Do we want to have lots of people that are servicing and supporting hardware and software that is not strategic to the company?’ I don’t think I do,” says Mr Brewer. “I would rather have those people working on core things that the company has a strategic interest in and need for.”
From a budget perspective, another possible advantage of moving work that would typically require investment in hardware to the cloud or a third party provider, is that it can shift spending from the capital expenditure budget to operating expenses.
“So maybe I can take pieces of the (IT) environment and outsource them, pay an ‘opex’ expense on it, but not have people working on it,” says Mr Brewer.
Since cloud services are typically paid for on a per-user or “utility” basis, the move to cloud computing can help accommodate seasonal or unpredictable usage without requiring investment in infrastructure such as data centres, which might sit underused for much of the time.
“Customers want choices as they consider cloud solutions, so they can respond quickly to changing demands in an uncertain business climate,” says Brett Caine, general manager of the online services division of Citrix, the US company specialised in remote working technologies.
“Some will prefer to develop their own private clouds, while others will adopt secure, on-demand, pay-as-you-go services. By taking steps now, valuable insights and experience can be gained, enabling more confidence in making the right business decisions.”
In many large companies that operate their own server-intensive infrastructure as well as among cloud-based service providers, data centres have become a focus of attention and possible cost savings.
For example TelecityGroup, Europe’s largest data-centre operator, has invested $1m in improving the energy efficiency of its estate.
The company’s initiatives include fitting 250,000 plastic “blanking panels” to fill the gaps between the servers in the racks and stop the hot and cold air mixing; replacing fixed-speed air conditioning fans with variable speed drive units (this paid for itself in six months); retrofitting free air cooling (which also paid for itself during the first winter); and raising temperatures in newer data centres in line with the latest guidelines, from about 21C to 26C, which can save up to 20 per cent on the total cooling bill.
Other companies are making more effective use of their IT budgets by modernising and streamlining existing – often paper-based – processes to achieve significant savings.
For example, Sanofi-Aventis, the French multinational pharmaceutical company, is using Microsoft’s SharePoint to revamp its R&D process. As at other pharma companies, R&D is critical to Sanofi’s success, and global drug trials are a huge part of the process.
The old process was time-consuming and depended on paper-based processes to manage each trial, producing thousands of documents. Sanofi expects the new digitised process to save $9m over the next few years.
Other experts argue that, since technology changes quickly, it is important for companies to analyse their requirements carefully before deciding how and where to spend the budget.
“The question about making the right choices at the time of so much change in technology and indeed business is best answered by looking at the expected time span of the solution and degree of integration required,” says Andy Mulholland, chief technology officer at Capgemini, the consultancy.
“Many technologies are evolutionary when applied to the existing IT environment and so decisions are based on relatively low-impact issues; that is, a minor improvement to operating existing servers with a strong cost pay-off.”
“But it is in the relatively new areas of business analytics, social customer relationship management and mobility that it really matters.”