Meta Group Quarterly: CIOs planning properly

The latest quarterly snapshot from analyst house Meta Group shows the cornerstones all top-notch IT organisations must have in place. Can you tick these boxes? By Luis Leamus...

Current research on IT spending leads us to believe that improving economic conditions will loosen selected IT purse strings in the relatively near future (first half of 2004). As many CIOs have recently made their initial 2004 budget submissions, the early responses confirm this view and indicate a slight incremental growth of one to three per cent.

Therefore, CIOs should now ensure that their IT organisations are well prepared for when business opportunities come knocking at IT's door. These preparations should include ensuring a highly responsive and simplified infrastructure, having quick turnaround solution development and deployment processes, and implementing a proactive sourcing strategy that puts the IT organisation in a 'ready to go' mode.

Within the old 2003 budgets, the focus was to severely cut 'discretionary' projects and, where possible, avoid or delay non-discretionary enhancements. Consequently, many non-discretionary enhancements were not executed in 2003, leaving an increasingly brittle IT services infrastructure that, when called upon to perform, will not be adequately provisioned or prepared. While continuing to demonstrate effectiveness at cost cutting and control, CIOs must counteract excessive attention on cost cutting with a categorised spending strategy, clearly emphasising vulnerabilities and risks to business performance.

When it comes to cost cutting, Meta Group believes companies have cut costs about as far as they can – for example, Lucent announced that it has reduced manufacturing costs by 92 per cent since 2001. So organisations should now move to advanced cost-cutting strategies - stop making losing products.

This can be achieved by scientifically evaluating a company's portfolio of existing products, product extensions and new products with the help of product portfolio management (PPM) applications. This increases a product's chances of commercial success and reduces product development cost by allocating resources only to those products that are likely to succeed. The PPM segment of product life-cycle management (PLM) is still immature. However, organisations will find viable PPM functionality from Tier 1 product life-cycle management (PLM) vendors PTC, SAP, and Agile Software as well as from best-of-breed vendors IDe (IBM partner) and Sopheon.

When it comes to IT spending, it is astounding to note that more than half of Global 2000 organisations provide inadequate processes for evaluating and determining IT investment priorities. As a result, IT governance organisations spend an inordinate amount of time and resources determining when and where to invest scarce IT pounds to maximise value to the enterprise. CIOs should consider using sophisticated portfolio management software with embedded processes to facilitate decision-making, provide empirical data and automate the timely tracking of investments.

As forecast by Meta Group, the adoption of portfolio management (PfM) is broadening. This is confirmed by the mounting demand for and supply of lower-cost products and services that are clearly focused on accelerating the realisation of PfM's value. More organisations are finalising where and how to apply PfM, with spending management during budgeting/planning and corporate strategy discussions (for example asset rationalisation and project prioritisation) and cost control during execution (asset management, project management) being most popular. This market maturity will yield repeatable, reusable, governance-focused 'templates' (people, process, policy), further generating more interest, success and thus spending in portfolio management.

The benefits of this structured discipline include reducing the operating cost of the IT portfolio (without sub-optimising IT investments), improving ROI, mitigating risk and delivering tangible benefits and value.

In addition, initial portfolio management adoption has resulted in unparalleled improvement in communications quantity and quality, notably between business and IT executives regarding IT spending. Its next significant value opportunity will centre on thematic approaches (applications, assets - physical plant, fleet and so on), shifting cost from being a target of opportunity into serving as an environmental constraint within which users will categorise value and enable the prioritisation of investment options including the balancing of existing assets and their ongoing costs with that of new asset development. There will be new valuation attributes, analysis techniques and overall performance threshold criteria enabling organisations to know when to stop, maintain and accelerate investment decisions much earlier in an entity's life cycle.

In terms of labour costs, flat base salaries have kept these to slightly under 50 per cent of IT budgets in 2003. However, by 2006/07, IT salaries will again escalate as the economy improves, putting labour costs at 55-60 per cent of the IT budget. As the economy improves, as predicted by second half of 2004, key IT employees may look to greener pastures. The IT organisation should conduct a regular review of salaries as an essential component of holistic human capital management. Proactive salary benchmarking conveys genuine managerial concern over personnel treatment and helps improve retention of key performers. CIOs should also begin paying closer attention to employee welfare, morale and performance-based incentives and retention programmes, while promoting IT organisation core values to prevent an exodus of key, valued employees.

As always, it comes down to the calibre of people to ensure success. For decades, championship coaches have known that high-performance teams centre on a few pivotal players. The same is true for championship CIOs. By augmenting the legacy talent of their IT organisation, CIOs can leverage what economists call 'factor intensity'. By focusing on the core IT competencies of planning, marketing, integrating and maintaining, CIOs can swiftly build top-notch IT organisations that perform while transforming.

CIOs should also focus on building merger and acquisition (M&A) experience to enable integration managers to be successful. For many firms, good M&A integration comes from finding someone inside the IT organisation with strong project management skills and an ability to generate consensus. Good integration managers do more than merely help departments merge. The best lead and inspire people throughout the acquisition process, bringing out the best in both merging organisations. CIOs should take proactive steps to groom project leaders to be integration managers.

While management expects that good project managers can plan for all the variables in a complex project in advance, nobody has a perfect crystal ball. CIOs should ensure that a variety of inch-stones (as opposed to milestones) are in mission-critical projects to provide proper visibility for just-in-time executive support or resources. Areas of typical weakness that executives should scrutinise include cross-function dependencies, architectural analysis and subsystem integration.

While a focus on short-term performance objectives may enable organisations to maintain or minimally improve their business practices and processes, such environments can stifle creative thinking. Changes in the enterprise, information and technology architectures can often be overlooked. Savvy CIOs must look for ways to ensure that all stakeholders are encouraged to bring forth new ideas that are not just operational or tactical but strategic as well.

Meta Group is a leading provider of information technology research, advisory services and strategic consulting. Visit metagroup.com for more details or call +44 (0)1252 819494.

Luis Leamus is senior vice president International at META Group. He is an acknowledged authority on the IT organisation, business value of IT, adaptive infrastructure and integration & middleware. Luis has more than 20 years experience in the global IT industry in business development, marketing, financial analysis and strategic planning.