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Issue of June 2004 
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Spending cautiously on IT initiatives

CIOs have taken a cautious stance towards IT investments. They are keeping budgets constant and allocating additional funds to certain enterprise-wide IT initiatives, on a case-by-case basis. by Anil Patrick R

The cash registers are ringing again for IT solutions vendors around the world. Global enterprises are once again spending on IT infrastructure. The improved economic scenario and the need to stay competitive have caused corporates to loosen their purse strings. While this is definitely good news for the technology industry at large, the Indian set-up provides a slightly different picture.

If 2002-03 witnessed under-utilization of IT budgets, 2003-04 saw many organizations exceed their initially defined budgets.

As per last year's survey (IS 2003, June issue of Network Magazine), CIOs had committed to spend an average of Rs 493 Lakh on IT-related investments. However 2003-04 saw organizations spending more on IT than they had initially budgeted. The companies surveyed have spent to the tune of

Rs 528 Lakh on an average. The strong economy along with the positive undercurrents seems to have bolstered CIOs to spend more.

The biggest spenders in 2003-04 were BFSI and Govt./PSU verticals. The average amounts spent by them were Rs 1026 Lakh and Rs 993 Lakh respectively. The Services sector (logistic, hospitality etc) with an average spend of Rs 551 Lakh has displaced the Telecom/IT/ITES vertical as the third largest spender.

The IT-enablement drive initiated by nationalized and second-tier cooperative banks along with the traditionally heavy dependence on technology have made BFSI the largest spender. Govt/PSUs are the other big spenders given the diverse nature of transactions over distant locations. Large-scale implementation of e-governance and enterprise automation initiatives in the Govt/PSU vertical during the last year is a major contributor towards this trend.

Among the companies surveyed, 73 percent CIOs said they invested in connecting their organizations (Bandwidth/connectivity), followed by 72 percent in hardware procurement (Enterprise hardware). Security comes third with 55 percent CIOs investing in this area.

More than allocated

In 2003-04 CIOs have spent more on IT procurement and maintenance than what they had initially budgeted for. Nearly 67 percent of the CIOs surveyed claim that the actual amount spent has remained same when compared with the budgeted amount.

Only 10 percent of the CIOs claim to have spent more on IT than the initial amount budgeted for 2003-04. Of these Chemical/Pharma companies seem to have spent more that the allotted budget (22 percent organizations), followed by BFSI (14 percent) and Auto and auto components (10 percent).

Telecom/IT/ITES is the main vertical to have underutilized its budgets with 30 percent of surveyed CIOs claiming to have spent less.

Treading with caution

The IT budget allocated for 2004-05 is more or less equal to one planned in 2003-04. On an average the companies surveyed have budgeted an amount of Rs 478 Lakh for 2004-05. The major spenders are likely to be Govt/PSUs, followed by BFSI and Manufacturing/Engineering.

The Govt/PSUs vertical is committing a significant spend: their average amount allocated has climbed up from Rs 642 Lakh in 2003-04 to Rs 1065 Lakh in 2004-05.

There seems to be a significant drop in the budget allotted by the BFSI vertical this year as compared to last year, since most of the banking and financial institutions surveyed already have substantial IT initiatives in place.

From the overall results, it appears that CIOs have taken a cautious stance towards IT investments—they are keeping their budgets constant and allocating additional funds to certain enterprise-wide IT initiatives, on a case-by-case basis. Also, in the case of certain automation initiatives, a certain part of the project is funded by various business units.

Many large organizations already have sizable IT investments in place. These companies are more concerned with maximizing their returns on IT and other maintenance initiatives than making fresh investments.

Technology spends

On the technology front, the good news is that more Indian organizations are taking security more seriously this year. Security investments seem to be the clear focus area with nearly 61 percent CIOs planning to invest in Security in 2004-05. This is an increase over last year when 55 percent of CIOs had spent on Security. The other technology areas registering growth are Storage and Enterprise wide applications, with nearly 48 percent CIOs planning to increase their in Storage and 42 percent in Enterprise wide applications.

Research Snapshots
  • 2003-04 saw many organizations exceed their initially defined budgets. Companies spent Rs 528 Lakh on average.
  • The biggest spenders in 2003-04 were BFSI and Govt./PSUs verticals. The average amounts spent by them were Rs 1026 Lakh and Rs 993 Lakh respectively.
  • Chemical/Pharma companies are the ones who seem to have exceeded their allotted IT budgets.
  • The top three technology areas for investment in the last one year were Bandwidth/Connectivity (73 percent), followed by Enterprise Hardware (72 percent) and Security (55 percent) CIOs investing in this area.
  • Telecom/IT/ITES is the main vertical to have underutilized its budgets with 30 percent of the respondents claiming to have spent less.
  • In 2004-05 the average IT amount budgeted is Rs 478 Lakhs. This year Govt/PSUs will be the largest investors in IT followed by BFSI.
  • Security will be the focus area in the next one year, with nearly 61 percent planning to invest in Security.
  • The other technology areas registering growth are Storage and Enterprise wide applications.

 

Making the right decisions

One of the objectives for IS 2004 was to understand the typical IT decision making cycle in Indian organizations. Active business involvement in making IT investment decisions is evident with 80 percent of the organizations claiming close alignment of business and IT goals.

Top management is now more involved with IT initiatives. Participation is more during the initiation/authorization stage (58 percent). This is due to the fact that IT budgets are clearly determined by the business functions required (in 50 percent of organizations). The business involvement lessens during the planning (52 percent) and execution (42 percent) stages. However, in many organizations, the business is actively involved in controlling/monitoring and measuring progress of initiatives (44 percent). Post completion assessment of initiatives with the involvement of senior business leaders happens in 37 percent of the organizations.

There is active involvement from user representatives during the various stages of IT initiatives. User representatives are most actively involved during the initiation/authorization (56 percent) and planning (48 percent) stages. The involvement decreases afterwards during execution (44 percent), controlling/monitoring/measuring progress (39 percent) and post completion assessment (35 percent).

Today, the Indian corporate considers the IT head as part of the organization's executive management team (70 percent). Most businesses are highly dependant on IT and it is common to see IT heads as members of the management board. More than 76 percent of CIO/CTOs have corporate wide responsibilities than just being confined to the division. The IT team is the final decision maker for IT investments in 24 percent of organizations and part of the team making IT investment decisions in the rest.

 
     
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