Tuesday, March 23, 2004

IT budgets: spending less but getting more

Erik Keller, in an Optimize Magazine article, points out that an optimistic outlook for the U.S. economy does not necessarily mean an end to the IT spending famine:
Many corporate executives have decided that a lean, mean, and slightly hungry IT department may be the ticket to profitability and enhanced competitiveness. Consider the following:
  • FedEx stated that it won't increase IT budgets through 2006. Others, including Motorola and the U.S. federal government, have echoed similar goals.

  • The latest Commerce Department capital-spending numbers indicate the only large-growth area is hardware, which can be largely attributed to a short cycle of PC replacement.

  • Not all chief executives of major IT vendors are predicting that the corporate spending freeze is over yet.
Keller also outlines three large companies that are getting more from IT budgets while spending less:
  • Harrah's, which tries to cut 5-10% from its IT budget every year for specific business functions.

  • Merrill Lynch, which cut IT spending by one-third between 2000 and 2003 by transferring responsibility and management of the IT budget to the business units, giving users better visibility into where cuts were possible and how to make better use of the technology it already had installed.

  • Jetblue, which spends roughly the same percentage of revenue on IT as other air carriers but spends it in smarter ways. For example, it has standardized on a single technology platform (Microsoft), it has implemented voice-over-IP technology to allow reservation agents to work from home, lessening the need for call center infrastructure; and it has deployed a paperless system for flight documentation, cutting costs of distributing paper documents to pilots.
Keller goes on to describe a number of opportunities for managing costs while maintaining benefits, such as strategic sourcing, contract management, asset utilization, and tighter software license management. He also outlines a three step process for evaluating IT cost reductions.

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