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Maintaining a fine balance

The days of carefree IT spending has given way to an era of regulated IT budgets, ROI focused investments and increased efficiencies. IT Heads are looking at new ways to do more with less

Just about a year and half back, most CIOs had clear orders: Buy computer gear by the truckloads in order to kick off new business initiatives. Every industry, right from automobiles to retailing was keen on adopting new technologies in order to stay ahead of competition. We had businesses adopting solutions like ERP, CRM, etc that need investment in high-end IT infrastructure. The idea was to streamline business processes, cut cost and reach out to customers better. Most enterprises achieved this with varying degrees of success.

When doing this it hardly mattered whether CIOs were squeezing every last bit out of the infrastructure they were deploying. In many cases technology was adopted for technology's sake, without taking into consideration the actual benefits the core business would derive.

Not anymore. The past year has been a turbulent one for most businesses across all industry segments. Investment in IT infrastructure, which was considered crucial for business expansion over the last two decades, has been severely affected.

After years of heavy IT spending, businesses worldwide are cutting down on their IT spends, in some cases slashing their budgets by over 20 percent. This poses a serious challenge to CIOs/CTOs who are forced to keep a check on their IT spending while ensuring their company maintains the competitive edge.

But the days of carefree IT spending have given way to an era of regulated budgets, ROI-focused investment and increased efficiencies. While focusing their investment on areas that would help them save costs from day one, CIOs are also trying to squeeze more out of existing equipment before placing orders for new equipment. CIOs are trying to maintain this fine balance in order to achieve their two-fold objective: to accommodate their IT needs in the budget allocated to them while ensuring their company doesn't lose its technology edge.

"Infrastructure Strategies 2002", the Network Magazine ORG-MARG first annual CIO/CTO survey, highlights the issues mentioned above.

Under the microscope
The survey results highlight some of the interesting trends in IT procurement decision making. Among the companies surveyed 56 percent said that the IT Head acts as the main decision maker regarding any IT procurement/implementation decision. Every four out of five technology requirements are defined by IT Heads. Contrary to the popular belief among some vendors that the CFO also plays a crucial part since he is the man behind budget allocation, only 5 percent of the respondents said that the CFO plays a key role in IT procurement decision making. Various levels of management, which includes Business Managers and CEOs, also take part in IT procurement decision making, but the key influencer/decision maker is the IT Head.

Seeking business value
Of the companies surveyed 49 percent said the key decision parameter for any IT procurement decision is the "Business Value" it would add to one's core business. An example would be an auto manufacturer implementing ERP or SCM in order to increase process efficiencies. ROI is considered as the second most important parameter with 34 percent of the respondents vouching for ROI.

Price, often considered to be the main parameter by most vendors, is a distant third at 20 percent.

Focus Vs Budget allocation
The top interest area this year for IT Heads is Enterprise Software (41 percent IT Heads have expressed this interest). This is closely followed by Bandwidth/Connectivity (39 percent) and Security (37 percent). The average amounts allocated however give a totally different picture. This year the highest average amounts allocated are for Converged Networks (Rs 368 Lakh), Bandwidth/Connectivity (Rs 346 Lakh), Enterprise Hardware (Rs 288 Lakh). The average amount allocated for IT this year (Rs 554 Lakh) shows a negligible increase as compared to last year (Rs 549 Lakh).

Quick Stats

Most decisions regarding IT procurement/implementation originate from IT Heads

Decisions taken by IT Heads on any new requirement is based on the business value gained by implementing that particular technology

There is a marginal increase in the amount of funds allocated for IT in the current year as against the last year

Top 3 focus areas this year: Enterprise Software, Bandwidth/Connectivity, and Security

Highest average amount allocated for: Converged Networks (Rs 368 Lakh), Bandwidth/Connectivity (Rs 346 Lakh), Enterprise Hardware
(Rs 288 Lakh)

Average (in Rs lakh): 549 (‘01) and 554 (‘02)
Last Year (in Rs Lakh)
This Year (in Rs Lakh)
Manufacturing 213 279
Services 761 735
IT/Telecom 718 717

Backend methodology
Like every survey, this one too involved over four months of extensive research. Here's how we did it:

  • The first step involved in any research is designing the questionnaire. For this we sat with the ORG-MARG team to decide on the various parameters based on which the questionnaire would be structured. This was a tough task, given the fact that we had to play around with over 100 variables and still keep the questionnaire short so that a CIO would be able to answer all the queries within 30-40 minutes.
  • After designing the rough questionnaire, the next step was to conduct three pilot interviews with CIOs. The idea was to cross check our parameters and assumptions before we went ahead with the actual survey.
  • The next step was to identify the IT Heads in various companies. For this survey we finalized on a sample of 200 IT Heads (CIOs, CTOs, VP-IT etc) across four cities-Mumbai, Delhi, Bangalore and Chennai. This was on the assumption that most IT Heads are based in this cities. We were also very careful that the sample represents all the industry segments, either sector-wise or turnover- wise. Industry-wise we divided companies into six main categories: Manufacturing, FMCG, Banking & Finance, Services, IT and Telecom. (Later for the analysis these were merged into three main categories: Manufacturing, Banking & Service, IT/Telecom.
  • After this the ORG-MARG field team, armed with a structured questionnaire and pre-defined parameters conducted interviews with IT decision makers. This entire exercise stretched over a period of two months.
  • The last but most important step was analyzing the research data and drawing valid conclusions.

Survey objectives

The objectives of "Infrastructure Strategies 2002" are three-fold:

  • To understand the IT budget allocation for 2002-2003
  • To analyze the main technology verticals CIOs/CTOs are focused on
  • To evaluate the benefits enterprises seek from a particular technology

In the next few pages we provide you the detailed features on each of the different categories we have covered in this survey.

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