• July 18, 2005
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

IT Departments Are Caught in an Austerity Trap

Corporate IT departments are winning the battle on cost cutting, but losing the war on performance, according to a study published today by Accenture. The constant pressure to do more with less leads to what the study calls an austerity trap, wherein an increasing percentage of the IT budget goes to maintenance of legacy infrastructure instead of investment in newer, more efficient systems. "IT Investing for High Performance," an anonymous study of 300 Fortune 1000 companies and similar-size organizations, reveals that there is considerable space between successful IT strategies and mediocre ones. "There's a very big difference between high-performing IT organizations and low-performing ones," says Frank Modruson, CIO of Accenture. "High performers are more aggressive adopters, spend more time building new systems, have more comprehensive metrics, and make greater use of online and self-service functions." The study shows that despite a 9 percent increase in average IT spending last year, tech implementers are unable to meet their service goals. "Over the past six to nine months, we've seen that IT departments have had more money to work with, but even more work to do," Modruson says. He notes companies spend more, but they don't invest in their future, focusing instead on maintenance and capital replacement. "The austerity trap is that, as IT departments are forced to do more work with less money, they spend an increasing amount of resources on keeping old systems working. High-performing organizations realize they will save money and improve company performance by spending on new technology instead of patching [the] old." Companies reported spending 39 percent of their time fixing applications and support hardware, but only 14 percent installing new ones. High performers report spending 40 percent more of their budget on new systems than low performers. The trap is set by freezing or cutting IT budgets and expecting the same level of service, but the solution is not necessarily to spend more. Rather, high performers spend what they have on new technology and repurpose their existing systems for online interaction and other low-cost functions. The quality of spending, not merely the quantity. determines performance. Modruson says metrics are crucial to IT management. "We can learn a lot from the manufacturing industry. The change from how the auto manufacturers performed 30 years ago and how they're doing today is very much a function of how carefully they measure their performance and respond. IT organizations need to be more industrialized: identify the key metrics that describe your business behavior, then manage to those metrics." "Executives--CEOs, CFOs, CIOs--have been hesitant to invest in IT because of shaky track records," Modruson says. "Repurposing the department's spending to adopt new, more effective technology does more than cut costs in the long run. Investing in the future in the form of new implementations increases productivity and efficiency." Related articles: Midmarket Retailers Will Up IT Investments
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