"In preparing for battle I have always found that plans are useless, but planning is indispensable" Dwight D EisenhowerIDC's Peter Hind goes "once more unto the breach" with his annual "Forecast for Management survey, capturing information on technology uptake, spending patterns and the challenges facing CIOs.
It is popular to regard the IT marketplace as something of a battleground between competing suppliers. Three or four solution providers tussle over conquering the particular needs of the CIO. With their proud ANZAC heritage, one thing Australians and New Zealanders are not averse to is a fight when the circumstances warrant it. Perhaps, then, that is why both countries have one of the most active IT markets in the world. The IDC annual Information Society Index shows that in comparison with the rest of the world, on a per capita basis, both countries punch well above their weight in adopting new technology.
However, like any battle, those who go in ill-prepared are likely to be easily cut down. To help IS suppliers in their battle plans, since 1986 IDC has conducted an annual study of the local IS marketplace called Forecast for Management. But these are cost-conscious days in IT departments, and many CIOs view their budgeting cycle as their annual crucifixion. In that regard, Forecast for Management also helps CIOs to answer the standard business query: "What are other people doing?"
The main answer to that is: spending more on IT. Forecast for Management has tracked IT investment as a percentage of an organisation's turnover since its inception. Respondents were asked to report the percentage for their last annual operating period. This year the figure grew from 2.5 per cent in the 2000 survey to 3 per cent. The result at first startled IDC. Last year, the figure captured the tail-end of Y2K work so the expectation was that expenditure would decrease in 2000. However, in retrospect, it is apparent that 2000 was an active year for many in IS. A lot of companies had to gear up for the Olympics, and GST compliance affected nearly every business in Australia. Moreover, despite perceptions to the contrary, organisations continued to invest in e-business initiatives.
Despite the doomsayers' projections of an upcoming recession, CIOs were also bullish in their outlook for IT budgets. There was a median average forecast growth of 4.55 per cent in the current operating period. This was down slightly on last year when the forecast was 4.62 per cent. But in the post-Olympics anticlimax, this is still bullish, especially when the survey was completed at a time when Dun and Bradstreet research revealed this was a quarter of negative growth in Australia.
Two industry sectors are most responsible for this growth. CIOs in the public sector reported their median IT spend was now 3 per cent of turnover, compared to 2.5 per cent last year, while in the burgeoning leisure sector it rose from 3.03 per cent to 4.95 per cent. This figure was only marginally lower than in finance and business services, which has consistently averaged the highest median spend on IT: around 5 per cent of turnover.
The study then explored how these moneys were spent. It provides 10 items of potential IS expen-diture and asks CIOs what percentage of their organisations' IT budgets were allocated to each. Hardware still receives the lion's share of the CIO's budget at 25 per cent, but it is declining, dropping from over 30 per cent of the IT budget in the 1993 survey. Moreover, respondents forecast it will continue to fall steadily over the next two years. Conversely, there was small growth in the proportion of the IT budget given to software. This was up from 13 per cent last year to 14 per cent this year, with further growth expected by CIOs till the end of next year. Nevertheless, this is still well down from 1997 when, largely because of the commencement of Y2K work, it represented 17 per cent of the IT budget.
In other categories, spending was more or less in line with last year's data with two exceptions: training saw a small percentage growth, and, over the next 24 months, CIOs forecast that they would spend more on external support services and contractors.
CIOs are changing how they source IT investments. The survey outlines six options for sourcing. These are direct from vendor; from resellers, through dealers and distributors; via retailers; over the Internet from any of the above; through telemarketing by any of the above, or via external services such as outsourcing or application service providers.
While the proportion obtained direct from vendors was constant at around 30 per cent, there was a continuing decline in the percentage obtained from resellers (down from 62 per cent in 1999 to 57 per cent this year). Instead, CIOs are buying more goods via the Internet (5.43 per cent today versus 1.79 per cent in 1999). It seems CIOs are starting to practise what they preach.
The biggest growth between the 2000 and 2001 survey was in the area of marketplaces and portals. Last year only 3.6 per cent of respondents identified themselves as users of portals. Today that figure is 10.3 per cent, a growth of 186 per cent. Second, in terms of percentage growth over the same period, was storage area networks (SANs), which rose from 4.3 per cent to 8.0 per cent in the last year.
While both of those technologies grew from small bases where large percentage increases are easier, there were four other technologies showing significant growth, and these had at least a 15 per cent reported usage in the 2000 study. These were: extranets (70 per cent growth); workflow (63 per cent rise); e-commerce (54 per cent increase); and Citrix/thin client, (up 38 per cent).
There seems to be two key characteristics to these increasingly popular solutions. First, they offer an organisation the opportunity to consolidate for cost savings. This business driver is probably behind the adoption of functionality such as SANs, voice over IP and Citrix/thin client. The other business driver is streamlining business processes for staff and work efficiencies, which sees CIOs embracing extranets, workflow and, possibly, e-commerce. It appears CIOs are indicating that expenditure in speculative technologies, especially those requiring significant infrastructure investments, are becoming more difficult to fund. Instead, it seems easier to put forward solutions where the business case and the ROI is easier to quantify.
CIOs have also forecast strong growth for most of these technologies over the next two years. When asked what technologies they envisaged embracing in this time frame, there was significant enthusiasm for SANs and marketplaces. However, there was also support for two other areas. The first was wireless technology like WAP/I-Mode and LMDS. The second was security functionality like smart cards and biometrics.
The latter is probably a response to the number of high-profile security breaches reported in the press, with CIOs hoping that technologies like finger scans or iris recognition offer added protection. The former is perhaps because, with most organisations still undergoing considerable flux, IT infrastructure could act as a straightjacket for change. Wireless networking offers the IT department flexibility in handling changing locations and personnel.
On the Other Hand . . .
Every coin has two sides, and while some solutions are charging ahead, others are bogged down in the trenches. Interest in sales force automation, geographical information systems (GIS), WAN switches, multimedia and mobile computing is dropping. The last in this list probably goes hand in glove with the first item. The others are probably being succeeded by more modern technology. All, though, seem to bear out the view that speculative IS investments are very much off the agenda for the time being.
One thing which has not been bogged down is use of the Web. Despite the fall from grace of the dotcom companies in the past year, CIOs view the Internet as a key channel. In last year's survey, IDC asked respondents for the first time to identify the proportion of their IT budget allocated to e-business activity. The average response was 4.01 per cent. This year, despite the dotcom crash, it rose to 4.56 per cent. The distribution, finance and leisure sectors fuelled most of the growth. In fact, the percentage of the IT budget dedicated to e-business activity in the leisure sector alone rose from 6.66 per cent in the 2000 to 13.32 per cent today.
The main role for the Internet in business is client support. Instead of having to battle switchboards, voice mail and faxes gone astray, customers can post queries or complaints and receive a response whatever their movements. For suppliers, Internet support services force queries to be documented, which probably ensures they are better articulated. Since queries are received electronically, workflow systems can direct them to appropriate staff. Finally, online support allows query statistics to be gathered and grouped as a by-product of the process, providing valuable input to quality management activities.
This is in line with what CIOs see as the primary benefit of the Internet to their business: improved customer satisfaction. The Internet offers self-service functionality to customers and provides 24x7 communication. In turn, this leads to the second most popular benefit CIOs see in the Internet: reduced costs of doing business.
Perversely, cost remains the main obstacle CIOs anticipate in exploiting the Internet. Some 38 per cent of respondents identified cost as a significant barrier to harnessing the Internet, up from 30 per cent last year. The dotcom fallout, coupled with less than spectacular e-business initiatives, has made business executives increasingly nervous about approving extra funding for Internet efforts. It's not surprising then to see that 30 per cent of CIOs gave corporate vision as the primary barrier to taking advantage of the Internet.
One ray of sunshine for CIOs from the dotcom crashes was the influx of Internet-savvy workers onto the open marketplace. As a result, there was a 17 per cent decline in the last 12 months in the number of CIOs who gave in-house skills as a big obstacle in their organisations' Internet journeys.
But there are still plenty of challenges for CIOs.
Up for a Challenge?
Forecast for Management offers CIOs a choice of 25 potential challenges and asks them to identify which they regard as their top three over the next 12 to 18 months. From this, IDC then develops a ranked list of CIO priorities. Recruiting and retaining skilled staff rose from ninth place in the 2000 survey to sixth place this year, while reskilling IT staff climbed from 13 to 11.
The top concerns for CIOs remain aligning IT to the business and reducing costs. In the current economic climate, it would be surprising if they were not. The pace of business restructuring continues unabated. Lay-offs, mergers and take-overs are rife; and the market continues to rationalise. It is an immensely challenging time for CIOs to build an IS architecture for the future when the future seems increasingly uncertain. Add the current corporate obsession with cost-reduction, and CIOs, as the gatekeepers of a large component of the corporate budget, must expect to play their parts in expense control.
These concerns are reflected in the challenges rising through the ranks of the top 10. Migrating to new platforms went from sixth to third place. The issue of developing effective IT investment cases rose from eighth to sixth spot. Change management rose from ninth to seventh spot. However, the issue with the most spectacular rise was systems development quality. In the 2000 survey, CIOs rated it their sixteenth major challenge. This year they rated it ninth, with a 108 per cent increase in the number of CIOs regarding this as an increasing problem. IDC believes this might represent the frustration many CIOs have in building business systems in the current corporate turmoil. It seems they find themselves working towards a constantly moving target.
Strategic planning activities also provide other evidence of the difficulties CIOs have in handling corporate change. In 1996, 21 per cent of respondents reported that their IS strategic plans changed every three years, while another 6 per cent waited five years to make these amendments. This year, these figures have dropped to 17 per cent and 3 per cent respectively. On the other hand, 60 per cent of CIOs now update their plans annually compared with only 44 per cent in 1996. It seems all IS plans now are very much living documents.
All this turmoil represents good opportunities for laterally thinking IS suppliers. Internal staffing challenges can be alleviated by the judicious use of outsourcing. Unexpected corporate change can be managed by the temporary hire of contractors and consultants. Even cost issues can be made more palatable by creative financing solutions, such as helping CIOs move acquisitions from capital budgets to operating expenses.
The challenge, though, when promoting the use of external resources seems to be that all the low-hanging outsourcing fruit has been picked. When Forecast for Management examined what IS activities are most likely to be outsourced, responses fell pretty much into line with past years. The main outsourced tasks are education and training, systems development, application development and technical support. Perhaps more suppliers should focus their energies on what CIOs are not likely to outsource: activities like the help desk, application processing, disaster recovery and desktop management. All can be significant problem areas for the busy CIO, and freeing internal IS resources here might help them address issues in other sections of their departments.
In the end, that seems to be the message from the latest survey. The problems CIOs face today are more to do with corporate turbulence rather than technological opportunities.
The Forecast for Management study consists of an eight-page written questionnaire issued each January, asking CIOs myriad questions relating to their use of, expenditure on, resourcing for, and challenges with, information technology.
Key points regarding the results from this year's survey are:
Sample: 9000 surveys mailed (572 responses)Country breakdown: Australia (72%), NZ (17%), Company size: 1000+ (22%), under 50 (17%)Industry sectors: distribution (19%), production (24%), public sector (29%), Leisure and other (6%), finance and business services (23%)Recruitment Drives.
A question introduced in this year's Forecast for Management asked CIOs how they source staff. Recruitment agencies topped the list, with more than 50 per cent of new IT hires coming through this avenue. The production, distribution and finance sectors were the biggest users of agencies, with less than 30 per cent of public sector CIOs opting for this route. Instead, public sector CIOs are much more likely to hire staff from university, TAFE colleges and even school. Just over 20 per cent of their new staff come from these sources. It appears that salary restrictions are forcing public sector CIOs to act as the real-life training ground for new IS graduates.
The other interesting statistic was the use made of Internet recruitment sites: only 3.7 per cent of IS staff are hired via this channel. While this figure was significantly higher in the finance and leisure markets, it seems that the wholesale move to online recruitment has been exaggerated.
With so much corporate change, it would be expected that most CIOs would be keen to offload some IT responsibilities. The evidence, though, is that this is not the case. Forecast for Management asks what degree of responsibility CIOs have for various IT-related activities. Traditionally, the main items outside the CIO bailiwick have been office machines like photocopiers and fax machines. However, this is declining noticeably. In 1997, 70 per cent of CIOs had little or no responsibility for this equipment; this year it was down to 56 per cent.
CIOs are also gaining control over their organisations' telephony investments. The number with little or no ownership of mobile telephones has declined over the last five years from 57 per cent to 52 per cent. Similarly, those with little influence over the voice network, in the same period, went down from 43 per cent to 37 per cent. IDC believes these trends are encouraging because they indicate that many CIOs could finally be in a position to harness the potential generated by the growing convergence between IT and telephony.