Australians and New Zealanders have a well-acknowledged predilection towards a gamble. The popular saying is that they will bet on two flies crawling up a wall. While that might be a slight exaggeration, there's little doubt that they are not averse to taking a chance. Perhaps that explains why they are some of the most enthusiastic adopters of information technology. History shows there is a significant gamble in selecting the right information technologies and suppliers. In the space of three to five years, once red-hot concepts can be quickly superseded and forgotten. However, this same time span is usually the length of an IS strategic plan and the minimum period over which an IS investment can be depreciated. CIOs know that if they back the wrong horse they are saddled with today's pick for several years.
This was one of the reasons that IDC Australia launched its annual Forecast for Management survey in the 1980s. The idea at the time was that if CIOs could get some insight into the technology preferences and aspirations of their peers, it would remove some of the guesswork out of IT selection decisions and strategic planning. This year's survey consisted of 42 questions covering a raft of IT issues and was sent to some 5500 CIOs across Australia and New Zealand between January and March. Just over 475 responses were received.
The most keenly anticipated question this year is what would happen to IS expenditure after Y2K. Last year many respondents indicated either a pre-Y2K investment-freeze or a post-Y2K investment lull. However, this year's results show that as a per centage of turnover IS expenditure within Australia and New Zealand has remained relatively stable over the last 12 months. In 1999's survey it stood at 2.51 per cent of turnover. In 2000 it was 2.48 per cent, a modest decline given the focus on rectifying the Y2K issue.
What is interesting is that this figure reinforces the notion that IT expenditure is plateauing at a new high within business. For much of the 1980s and early 90s IS expenditure averaged around a median level of 1.35 per cent of turnover. Then, when client/server architectures started to integrate the desktop and the data centre, there was a jump to around 2 per cent in the mid 1990s. However, by the end of the century the e-commerce revolution has seen spending jump to around 2.4 per cent. In an era of ruthless cost-cutting this additional investment is testimony to the faith business has in the potential of IT.
However, when reviewing how IS budgets are allocated, there is a shift in emphasis. In 1993 more was spent on internal staff, with outsourcing, line costs and networking getting a smaller slice of the budget. Today engaging external suppliers is an accepted practice, and most of today's high-profile technologies are network dependentNonetheless, the most fascinating finding in terms of IT expenditure this year was not what CIOs were spending but rather how they were spending. The financing of IT investments is clearly changing, especially among large organisations with more than 1000 staff. In 1998 when Forecast for Management asked CIOs how they financed IS investments, around 22 per cent reported that they leased the equipment. Today that figure is 34 per cent, a significant change in a little more than two years. This seems to support anecdotal feedback from InTEP members. CIOs are saying that in these days of share market value and boardroom scrutiny, big-ticket capital expenditure is increasingly more difficult. CIOs are examining creative ways to finance IT expenditure out of operating revenues, especially through leasing. They are also looking for IS suppliers who understand that true partnership entails jointly sharing the risks and the rewards.
The final budget question posed was the per centage of the IT budget allocated to e-commerce. The results were interesting: organisations investing the most in e-commerce are the small start-up companies with revenues less than $10 million. Surprisingly, the most conservative are small businesses with revenues between $10 and $50 million.
All Aboard the e-Train
Still, before businesses can hop aboard the "e" train they need to establish the right infrastructure. Above all, their employees need access to the Web. Here, the news from this year's study is particularly encouraging. The per centage of corporate PCs with Web access has steadily climbed from 8 per cent in 1997 to 50 per cent at the end of last year. Moreover, CIOs are projecting nearly 100 per cent linkage to the Web by the end of 2001.
In other areas of e-business infrastructure the results are also impressive. Despite the fact they have been around for several years, there has been solid growth in home pages, Web servers and intranets. And the outlook for most of these technologies over the next two years is strong. E-commerce itself has the rosiest future, although voice over IP and browser-based systems are not far behind. While growth in extranets over the last 12 months was modest, many CIOs anticipate implementing them by the end of next year. This would appear to support current business-to-business e-commerce forecasts.
Over the years when IDC asked about Net usage, the intranet was the unsung hero of the online world. Seventy per cent of local organisations have an intranet. Across all main areas of business, intranet dependency has nearly doubled over the last four years. When people talk about knowledge management, for many organisations the tangible component is their intranet.
Certainly Internet use has changed since 1996. Five years ago CIOs indicated they primarily used the Internet for advertising. In this year's survey advertising rates number three. Top of the pops is client support followed by client communication. This, in turn, ties in with what CIOs see as the primary benefit of the Net: reduced business cost. CIOs agree that clients support is more cost-effectively through an online service. On the other hand, CIOs have discarded some of their previous views of harnessing the Internet. People no longer see that going online will open up vast, new global markets. Nor do CIOs accept that the Internet will really provide a faster time to market. Instead, e-commerce appears to be increasingly viewed as a component in an overall distribution or customer service strategy.
That Vision Thing
When asked to look at the obstacles that impeded the exploitation of the Internet, the issues of cost and in-house skills more or less dominated responses since 1997. However, security concerns, while still significant, have come down from their 1997 peak. The real bolt out of the blue in this year's study is the issue of corporate vision. An InTEP member specifically asked if I would include this question in the survey. I am glad they did because 28 per cent of respondents see this hampering the success of their e-commerce strategy.
In my discussions with InTEP members it seems there are two aspects to this issue. For some, it is the fact that the executive is not attuned to the Web's potential. For many, though, it is that the executive is too keen. CIOs frequently express concerns that their executives' feet are not on the ground when it comes to e-commerce. When CIOs request a business case to justify investing in e-commerce, they are seen as lacking in enthusiasm for the brave new world. CIOs who have implemented EDI for nearly 10 years find it difficult, unlike their executive counterparts, to get too excited about the prospect of B2B e-commerce. One CIO said that his CFO now regretted sanctioning the heavy investment in ERP because he believed that if they had waited they could have done it with e-commerce. Past experience tells these CIOs that they are likely to be the scapegoats when the gullibility of the business to the false promises of e-commerce is revealed.
The challenge for CIOs is, then, striking a balance between the potential and the practical. Most CIOs see that there is an opportunity cost to the various options they consider. While e-commerce is clearly important, investments elsewhere may produce a better dividend in the short term. In particular, the area of business intelligence has gained a high profile in recent years. The perennial promise of IT has been information at your fingertips. The evidence is that the industry is, at last, getting serious about delivering against this promise.
In nearly all the business intelligence areas monitored in Forecast for Management, from document management to OLAP, there was solid growth. Surprisingly, despite being much ballyhooed, the exception was customer relationship management (CRM), where adoption rates were almost static between the 1999 and 2000 surveys. There are still some concerns in this vital area for IT. In particular, there is a disappointing internal focus in the use of data warehouses. Between 1997 and 1999 use of data warehouses by the administration and finance departments increased while it declined in the sales and marketing areas. Unfortunately, one cannot help feeling that a drop in use of something as fundamental as a data warehouse is a worrying indication that the business breadwinners still need to be convinced about the true value of IS.
After its Y2K heyday, ERP was largely static in 1999, which seemed the norm among integration technologies as a whole. Help desks, workflow and enterprise systems management solutions all showed little growth between the 1999 and 2000 surveys. The two exceptions in this area were supply chain management and workgroup computing. The latter is clearly associated with the intranet phenomena. With 60 per cent of organisations now claiming to have some workgroup resource, it is heartening proof that CIOs are getting serious about managing the information or knowledge resource of their organisation.
On the other hand, networking technologies had an impressive 12 months. Areas like frame relay, wireless networks and LAN and WAN switches had solid growth. For IDC this reflects the maturing of these technologies. Standards are facilitating interoperability and acceptability, while the emergence of new vendors seems to be opening up new value-add solutions that CIOs can use. This, in turn, seems to be empowering the remote field force of businesses. There was some surprisingly solid growth in well-established mobile technologies. In particular, telecommuting and videoconferencing each grew by around 24 per cent and 42 per cent respectively over the last 12 months. These are probably piggy-backing on the maturing of networking technologies as a whole.
However, IDC sees these technologies in conflict with the strong drive in the current corporate world towards centralisation and standardisation. In essence they empower the fragmented organisation. As such, mobile automation could well be the corporate battleground in the decade ahead. Do we give staff the tools to let them work their way and judge them on their outputs? Or do we mandate centralisation and force people to conform to that way of working? The emergence of these tools, and new technologies like WAP, could indicate that the pendulum is swinging back towards decentralisation - making for some interesting corporate tussles in the next few years.
Everything Old Is New Again
Currently, the main challenge facing CIOs is the perennial favourite of aligning IS to the business. The survey asked respondents to rate their top three challenges over the next 12 to 18 months. GST compliance was the second highest scoring issue. This is noteworthy because 12 months ago Y2K was by far the dominant issue on the plate of CIOs. It is apparent that many CIOs are, unlike in the case of Y2K, reluctant to take ownership of the GST. This is in their minds a business issue; while they are prepared to play a supporting role, few see any mileage in making the running for it. Those agitating for more urgency among CIOs in addressing the GST issue need to ask why they should, especially when the CIO has spent several years immersed in a non value-add activity like Y2K.
The task of connecting to partners, suppliers and customers electronically shot through the list of CIOs' concerns. In 1999, it was the eleventh most noted challenge among CIOs. This year the e-commerce focus saw it rise to fifth. The other notable climber was the issue of ensuring effective use of the desktop. This appears to be closely tied to Microsoft's product cycle. Focus on the desktop among CIOs has risen after every major Microsoft release from Windows 95 onwards. With suppliers typically supporting only the current and previous release of software products, CIOs are clearly concerned that the advent of Windows 2000 will see vendors suggesting that Windows 95 clients are no longer supported. This will then give these suppliers an excuse to foist upon users unwanted client software upgrades. ERP users in particular have voiced these concerns.
Another concern emerging from the study was that CIOs are having difficulty getting the users to contribute to IS project monitoring. There was little improvement in executive participation on IS steering committees. Perhaps then it is not surprising that respondents identified aligning IT to the business as their most pressing challenge. What is surprising is the enthusiasm CIOs have for outsourcing responsibility for IS training. It would seem important to follow through after implementing any new system to ensure that end users are harnessing it effectively. Moreover, it would seem essential that CIOs use every opportunity they can to engage the business directly. This, in the end, was the biggest impression this year's research provided.
There is no doubt that business still has faith in IT and is still investing strongly in its potential. Furthermore, the ubiquitous e-commerce hype has technology in the forefront of most executive minds. However, CIOs seem to be highlighting that there may be something of an "all care and no responsibility" attitude in the business relationship with IS.
If the business does not contribute to IS steering committees, they cannot take ownership of projects. CIOs then have the unenviable task of second-guessing business's requirements. The task of managing expectations is significantly compounded because the users can only perceive benefits and are ignorant of the challenges in fulfilling this potential.
For CIOs determining where to place their IS bets for the business, this is a worry. It seems they are now dealing with a punter who can easily visualise the excitement of winning but who is totally unprepared for the prospect of any failure.
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.