The results are in from IDC's annual Forecast for Management survey, and they're a mixed bag. IT spending is up, but so is staff turnover. Year 2000 compliance is looking good, but remediation has caused more than a bit of navel gazingEach year IDC Australia eagerly digests the results of its annual Forecast for Management survey of IS executives. For a research organisation there is an obvious interest in uncovering how the local IT market may have changed over the last 12 months. Analysts are curious about things like the evolution of outsourcing, changes at the desktop, or the emergence of new technologies.
However, invariably the first question they ask is: What is happening to IT expenditure? In these uncertain times there is usually no better barometer of the health of the IT industry than the willingness of its customers to spend more or less than they did the previous year. The results of the 1999 survey should represent great news for the IT industry. Last year IT expenditure, represented as a percentage of an organisation's turnover, grew by 11.5 per cent over the value from the 1998 study -- yet another high for the local IT industry. When the question was asked for the first time in the 1987 Forecast for Management study, IS executives reported they spent 1.29 per cent of turnover on IT. This year that figure was 2.51 per cent. In fact, each year this figure has slowly but surely kept growing. Throughout the parsimonious 1990s the figure has increased by more than 80 per cent.
Yet somehow these figures mask a serious concern that the study highlighted.
The IS departments of Australia and New Zealand are clearly in turmoil.
Turnover rates for IT departments have escalated throughout the same period. In 1992 the annual number of departures from the IT department, as a percentage of total IT staff, was 9.93 per cent. Today this figure stands at more than 26 per cent. And worse is to come if New Zealand, with its more flexible labour laws, is a harbinger of what will happen in Australia when labour laws here are liberalised. Across the Tasman more than 31 per cent of IT staff left in the last 12 months. While the turnover in staff represents great opportunities for contractors and recruitment consultants, these extraordinarily high figures should cause great concern for most people engaged in IT. Each year Forecast for Management asks CIOs to identify their top three challenges for the next 18 months. Consistently, CIOs rate the issue of aligning IT to the business as a primary challenge, but achieving this goal -- historically a difficult task -- will be further impeded if there is no continuity in IS employment. Even the most professional of new IS hires will take some time before they are up to scratch in understanding the subtle nuances of the political structures of their new organisation. Furthermore, how can vendors build relationships with organisations, if their point of contact changes more rapidly than the weather on an average Melbourne day? Aligning IT with the business represented, however, the second main challenge facing local CIOs. The top one was, naturally, completing year 2000 compliance.
Here the news was good. While nearly 35 per cent of CIOs identified this as their primary challenge, it represented a 10 per cent drop over the previous year. Furthermore, of the 493 respondents to the survey, none reported they were yet to start their remedial work. In fact, the percentage of replies reporting their systems were Y2K compliant increased 133 per cent in the last 12 months. The main industry sectors indicating they were compliant were distribution, up 687 per cent compared with the 1998 study; and finance/business services, which increased 122 per cent.
But the good news is tempered by bad. Most Y2K projects have demanded a high level of introspection, which has its drawbacks. The prominence and drudgery of the work has no doubt had some influence on the very high turnover figures for IS staff. More disturbing, across the survey, there is a shift in focus: CIOs are moving away from using IT for competitive advantage. Instead, the focus seems to be on internal efficiency. Evidence of this internal focus showed in two ways. First, there was a surprising, and noticeable, trend away from data warehousing. This year 20 per cent fewer respondents reported they had deployed a data warehouse. Even large organisations, with more than 1000 staff, showed a decline in data warehouse use of more than 12 per cent in this period. Yet one must believe that these organisations would benefit from the data consolidation and consistency that a data warehouse offers. Even when data warehouses were deployed their focus was increasingly on internal efficiency rather than external services. There was an almost 22 per cent drop in the number of respondents reporting they were using their data warehouses to service their sales activities. And 18 per cent fewer respondents were using them to help with marketing. However, there was a growth in the number of CIOs applying their data warehouses against internal organisational activities. Use of data warehouses to support administration, finance and human resource functions increased over the last 12 months by 26 per cent, 12 per cent and 38 per cent respectively.
The other evidence of an increasingly internal focus for IS activities were the indicators showing a decline in any systems development work. Use of CASE tools fell by 24 per cent, while object-orientated development tools declined 18 per cent. The focus was instead on packaged solutions. As would be expected, ERP was the flavour of the month. There was a 56 per cent increase in the number of organisations reporting they had deployed such a solution. The largest sector (44 per cent) to report use of ERP solutions was organisations with more than 1000 staff. However, ERP vendors will be heartened to know that the industry sector recording the largest growth in this technology was mid-range organisations with between 250 and 1000 staff. There was an increase of 100 per cent in the use of ERP among respondents from this category, with nearly 31 per cent now using ERP. However, ERP was not the only enterprise integrated suite to make an impression among local CIOs. For the first time Forecast for Management included enterprise systems management (ESM) software among its technology-adoption categories. Sixteen per cent of respondents identified themselves as ESM users. ESM vendors are clearly piggy-backing on the accepted enterprise view promoted by ERP vendors and applying this to the upkeep of those systems. Their message has clearly struck a cord with CIOs in the largest organisations. In businesses with more than 1000 staff 37 per cent of respondents identified themselves as ESM users. Furthermore, another 30 per cent of organisations from this market sector anticipate using ESM by the end of next year.
Winframe a Winner
The technology which has shown the greatest growth between last year and this year has been Citrix Winframe-style functionality. Use of this style of PC architecture grew 82 per cent over the past 12 months. More than a fifth of organisations now use it. However, it was also noticeable that companies are deploying the technology in fat clients. In fact, when the survey asked respondents to identify their desktop devices, there was a growth in the number of desktop PCs used and a decline in the number of thin clients used. As evidenced at a recent Melbourne InTEP session, while promoted as a thin-client solution, much of the benefits of Citrix-style solutions are in their ability to simplify desktop support by reducing maintenance activities to a single server. With research showing that support and administration represents nearly 50 per cent of the cost of an average PC, this use makes sense, especially when the fat client also offers redundancy functionality in the case of server failure.
Despite Citrix's reliance on associated networking functionality its expansion has had little influence on the use of other networking components. It would appear that the current internal focus of IS executives means that they are putting in mothballs the potential of more advanced networking solutions. There was even a small decline, for the first time, in the use of mobile computers by field staff. Frame relay use, which 12 months ago CIOs anticipated growing by 33 per cent, was almost constant between the 1998 and 1999 surveys. ATM adoption did grow by more than 27 per cent. However, this was coming off a small base of 9 per cent and the increase was nothing like the 100 per cent expansion tipped by CIOs in the 1998 survey. Similarly, the dramatic growth forecast by respondents in the 1998 survey to other networking technologies failed to materialise. These included LAN switches (expected to grow by 16 per cent but which instead remained static), WAN switches (where growth in usage of 44 per cent was forecast but 9 per cent was achieved), wireless LANs (225 per cent growth predicted but only 34 per cent achieved), and wireless data networks (112 per cent increase in use tipped but only 10 per cent realised).
It is also worth noting that even the strong growth in the last two technologies is deceptive. Both came off very low usage figures in the 1998 survey, 4 per cent and 8 per cent respectively.
The only really buoyant technology in the networking arena was remote access servers. These grew 13 per cent, off a strong base, and nearly 50 per cent of organisations now deploy them. This probably has much to do with the fact that intranets and extranets require such servers for external interconnectivity.
The Internet is becoming an increasingly pervasive technology. Forecast for Management has asked questions about Internet usage patterns for four years now. Nevertheless, despite the fact that solutions such as intranets, home pages, Web servers and extranets are well established, the study showed that they have all recorded solid growth in the last 12 months. The percentage of businesses with Web servers grew 23 per cent, the number with home pages expanded 14 per cent, and extranet implementations showed a 51 per cent increase, albeit off a much smaller adoption figure from the 1998 survey.
However, despite these encouraging signs it is clear that the long-heralded electronic commerce revolution has still to eventuate. The questionnaire examined what CIOs saw as their single most strategic current or planned use of the Internet, and for the first time split the e-commerce category into two.
One option the survey offered was taking orders. The other was receiving online payments. Even when responses for both categories were combined, respondents ranked this option only fifth, trailing the more popular alternatives by a long margin. These centred around the use of the Internet as a means to communicate with clients for support, advertising or business services.
Still, there were some encouraging indicators for the prophets of electronic commerce. For the third year in a row there was a decline in the number of respondents who reported security as an obstacle to their exploitation of the Internet. Furthermore, there was solid growth in the numbers of corporate PCs connected to the World Wide Web. This increased from just less than 10 per cent last year to more than 20 per cent this year. Expansion was strongest in the leisure sectors of the economy -- the so-called service industries of hospitality, tourism, the media and gambling. Here, more than 60 per cent of PCs are now connected to the Web. If these leisure areas are to be the employment saviours of the next century, staff within them will clearly be well placed to handle the e-commerce world when it does eventuate. As would benefit a business climate where the executive focus is internal, intranets continued their steady expansion. Around 55 per cent of organisations now use them.
However, this growth was strongest in the operational areas of the business. In the finance area use of intranets increased by more than 36 per cent; in the human resources area intranet use was up 21 per cent, and in the administration area it was 14 per cent higher than in last year's survey.
The acceleration in Internet applications was an encouraging indicator of IT's acceptance in the business. Overall, however, the general trend in the responses to the survey ran counter to this. The question which asked CIOs what the aspects of their IT operations they benchmarked clearly brought this out.
Across the board there was a reported decline in IT benchmarking activity in the last 12 months. In the 1999 survey 18 per cent fewer CIOs said they were benchmarking end-user satisfaction with IS services, more than 16 per cent fewer were measuring if IS services were delivered on time or on budget, and there was a 15 per cent reduction in the number of CIOs monitoring systems availability. In the end all this adds weight to the view that the results of the latest Forecast for Management study are grounds for serious concern. In many ways the findings reflect a regression in IT's evolution. For a long time IT has been making serious attempts to bridge the gulf between the department and its business users. However, this year IS appears to have retreated into its technological shell. Given the obvious turmoil in IS staffing, perhaps the best remaining staff can hope for is to keep their heads above water.
Unfortunately, with business investing ever more in the promise of IT, this lack of vigilance over the delivery of business ROI indicates likely problems ahead.
The rays of hope are the establishment of the infrastructure to harness electronic commerce opportunities, when or if they do eventuate, and progress on Y2K remedial work. Hopefully, when the latter is behind them, more CIOs will remember that the role of IS is to service the business and this means establishing the type of systems that offer competitive advantage. Perhaps when these new and exciting projects emerge, IS staff will also be enticed into realising it is worth their while hanging around.
Who's in and who's out
With the dramatic growth in staff turnover it is perhaps noteworthy contrasting this with outsourcing activity to see if there is any correlation between the two. Since 1994 Forecast for Management has asked respondents to identify the level of outsourcing undertaken by their IS department. Against 17 IS activities CIOs assign whether they outsource none, a little, some, most or all of this function. Most or all responses are then combined to determine how much CIOs are using outsourcing. Given the instability in IS departments it is perhaps not surprising that in nearly every category there was an increase in outsourcing levels. The biggest growth between the 1998 and 1999 surveys was in the areas of network technical support and systems technical support. The percentage of CIOs outsourcing most or all of this work increased by 20 per cent and 14 per cent respectively. Elsewhere the rises were small but continued the steady increases over past years. Nevertheless, IDC believes the rises are not large enough to support an argument that the increase in staff turnover has been fuelled by outsourcing.
The only area where there might be some justification for this argument is the public sector. It was noticeable that outsourcing levels in the three levels of government were significantly above average. This was particularly the case in the area of application systems. Even from the initial time of systems conception, 73 per cent more than average CIOs from the public sector outsourced most or all of their IT/IS strategy development. Furthermore, 33 per cent more outsourced systems integration activities, 24 per cent more outsourced application development, and 20 per cent more outsourced application maintenance. These trends support anecdotal feedback from InTEP members in the public sector. There are common complaints that public sector pay scales prevent CIOs from attracting certain skill sets to their organisation as permanent staff. Many lament the folly that forces CIOs to hire these people as contractors at significantly greater organisational expense than if they had been hired as full-time employees. It is also likely that these higher than average outsourcing levels are also a reflection of the strong ideological commitment to outsourcing espoused by both the national and state governments across Australia and New Zealand.
Outside the public sector there were two other noticeable higher than average outsourcing levels. Sixty-six per cent more CIOs in medium-sized enterprises (that is, those with annual revenues between $50 and $250 million), outsourced most or all of their call centres and, no doubt influenced by various utility calamities in 1998, 34 per cent more finance CIOs outsourced their disaster recovery activities.
Each year Forecast for Management asks respondents to specify the breakdown of desktop terminals in their organisation. Five years ago ordinary VDU terminals made up just under 30 per cent of business computer screens. Today they represent only 9 per cent. In the same timeframe the percentage of desktop terminals that are PCs has risen from 60 per cent to 73 per cent while laptop computers have gone from 5.4 per cent of desktop devices to 11 per cent. With such entrenched acceptance, the PC is likely to continue to dominate the corporate desktop for many years to come. The specifications of these PCs have also changed over this period. In the 1996 study, respondents were asked for the first time to identify their corporate PC desktop standard. It comprised a 486 processor, 12MB of RAM, 600MB hard disk. A mere 13 per cent were equipped with a CD-ROM drive. Last year, the standard evolved to a Pentium with 32MB of RAM and a 12GB hard disk. Fifty per cent had CD-ROM drives. With most software now coming on CD-ROM, and writable CD-ROMs or zip drives available for backup, the days of the floppy disk drive look numbered.
Perhaps, though, the most interesting area of desktop debate is the operating system PCs utilise. In 1995, 71 per cent of desktops ran Windows 3. Last year only 12 per cent did. On the other hand, through the same period Windows 95 grew from 4 per cent to 56 per cent. However, CIOs forecast a sharp drop in Windows 95 use by the end of next year. By then only 26 per cent expected to be using the operating system. In its place is likely to be Windows NT. Currently, only 19 per cent of PCs use NT as their desktop operating system. By the end of the year, 2000 CIOs tip this to grow to 49 per cent of PCs. Its only real competition is likely to be Windows 98. At present this is used by 6 per cent of corporate PCs but CIOs project that Windows 98 will be operating on 20 per cent of their PCs, by December 2000. NT's growth is also influencing the CIO's choice of LAN operating system. In 1997, Windows NT server and Novell were almost neck and neck as the corporate LAN operating system of choice. Today Windows NT server is nearly twice as popular as Novell. With its dominance of both the desktop and LAN environment Microsoft's association with local business seems pretty solid for the time being.
Top Challenges Faced by Local CIOs
1999 1998 1997 1996 1995 1994 1993
1. Completing year 2000 update 1 * * * * * 2. Aligning IT to business 2 3 1 2 2 2 3. Migrating to new platforms 2 2 1 3 3 * 4. Reducing costs 5 4 5 9 6 3 5. Meeting users' expectations 4 1 1 1 1 1 6. Recruiting and retaining skilled IT staff 7 11 9 11 11 5 6. Managing change/migration 8 4 4 * * * 8. Keeping abreast of technology 10 6 6 5 7 6 9. Developing effective IT investment 6 7 11 8 5 7 10. Systems development quality 9 15 6 7 8 * 10. Connecting to partners electronically 10 * * * * * 11. Integrating multiple systems 12 15 8 4 * * 11. Organising and utilising data 15 * * * * *Source: IDC Australia "Forecast for Management" Study (1993-1999)Which Businesses Responded? Research sample industry breakdown - 6000 surveys mailed (January 1999) with nearly 500 respondents - 19 per cent of respondents were in organisations with over 1000 employees - 17 per cent of respondents were in organisations with less than 50 employees- Finance and business services: 17 per cent- Distribution: 19 per cent- Production: 21 per cent- Public sector: 37 per cent- Leisure: 6 per centSource: IDC Australia "Forecast for Management" Survey (1999)
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