CIOs Explore IT Sourcing Options

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The economic downturn now affecting the UK is unlikely to have a major impact on overall IT spending by enterprises, but CIOs are exploring a broader range of IT sourcing options to help them better manage IT costs and also deliver cost efficiencies to business.

Enterprise IT Spending Is Set to Dip -- But Only Marginally

It's no surprise that there's been a huge amount of industry debate over the past months regarding how overall IT budgets are likely to be affected by the economic downturn. On one hand, it's clear that few executive boards are going to be in the mood to grant significant IT budget increases in the coming year. But on the other hand, it's not necessarily the case that a tough business environment automatically means that CIOs will find their budgets squeezed until the pips squeak.

For example, where economic problems drive industry consolidation, mergers and acquisitions are notoriously dependent on IT development effort for their success. What's more, there's strong evidence that company board members are much more savvy today regarding the role that IT plays in keeping business moving, enabling growth, and driving efficiency than they were in previous recessions; and they're actively pushing business agendas that they know depend on strategic use of IT. Many CIOs I speak to are currently spending a lot of their time helping to drive business transformation programmes that are focused on a blend of standardising and improving business processes, streamlining back office functions, improving customer knowledge, enabling multi-channel sales and marketing, and enabling more effective partner collaboration. All of these business goals have clear links to a desire for greater efficiency and flexibility -- not at the level of IT systems, but at the level of the business model. Where these transformation programmes are underway (and there are a lot of them), this work isn't going to be switched off. In fact, it's likely that many efforts will be redoubled.

What I've gathered, from the small sample we obtained in our first CIO UK poll and also from my conversations with CIOs, is broadly in line with what I'm hearing from firms like Gartner and Forrester. Overall it's likely that IT spending in enterprises will decrease slightly in 2009. Let's be careful, though, how we react to this expectation. In better times, we might hear that IT spending is set to grow three per cent - but that might be set against an inflation figure of two per cent; in real terms, we're only talking about a one per cent increase in this example. Likewise, it's wise to remember that a modest decrease in IT spending will occur against a backdrop of near-zero inflation.

CIOs Are Looking to Broaden Their Sourcing Options, Rather Than Radically Rebalancing Resources

So against this backdrop, what can we expect in terms of the ways that enterprises source their IT and IT people?

Of course, we already know that most large enterprises (our research suggests 70-80 per cent) already outsource a combination of network operations, desktop IT infrastructure management, and IT helpdesk management; and commission significant amounts of software development and integration work from third parties, too. We also know that a significant minority of large enterprises have longer-term "umbrella" software development outsourcing agreements in place, with many of those agreements being placed with offshore providers.

You might think that one big impact of the economic downturn would be a rush to send more software development, integration and legacy application management work offshore. But recent conversations I've been having with CIOs of enterprises across Europe, which back up the data from our first CIO UK poll, indicate strongly that this isn't the case. Yes, many CIOs are considering increasing their use of outsourcing and offshoring as a response to expected downward budget pressure: but a similar number currently predict that they'll retain their current in-house delivery / outsourced delivery balance, and some also predict that they'll do more work in-house.

What comes through very clearly, though, is that when it comes to sourcing new IT capabilities, the changing economic conditions are driving CIOs to look much more aggressively for opportunities to use both open-source software technologies and third-party application hosting, delivery and management services (software-as-a-service / SaaS offerings, in other words). In our CIO UK poll, both these were strongly identified as areas where people expected to do increase their activity.

As well as turning increasingly to options for new projects like open-source technologies and SaaS that minimise capital expenditure, we see a couple of other important tactics in play.

Firstly, we expect CIOs to work hard to minimise fixed IT infrastructure costs: partly by pursuing today's "business as usual", use of server and storage virtualisation; and partly by deferring hardware refreshes and software upgrades. Secondly, although we don't expect new projects to disappear, we do expect projects to be smaller, with quick delivery and payback timescales crucially important. Lastly, we expect more IT organisations to focus on projects which will help business cut its variable costs and boost productivity. Classic areas for consideration are those which help support interpersonal collaboration (improving efficiency, reducing the need for travel, and so on) and those which drive business process standardisation and automation (particularly in the areas of customer support, sales, marketing and product/service fulfilment).

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