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Pratap Ravindran

The ability to do more with less is at the heart of IT spending. How savvy are you on the `more value-less dough' strategy?

IT'S official. Information technology (IT) doesn't work naked.

Chief Information Officers (CIOs) the world over, bent out of shape trying to figure out ways of making sense of IT-spend in a recessionary environment, have been afforded a degree of comfort by the finding of Tom Pohlmann, Senior Analyst of Forrester Research, that what you spend doesn't matter — it's how you spend it.

According to Pohlmann, Forrester compared the financial performance of 291 companies with their industry peers and found that the poorest-performing companies spent the least on IT — 2.6 per cent of their revenue — while the top performers spent 3.3 per cent of their revenue on IT. The analyst points out that, for years, companies have been enacting "naked technology" — investing in IT without making the commensurate investments in people and process changes.

What really matters, Pohlmann observes, is the technologies that companies invest in.

Citing examples, he writes that early adopters of software for managing supply chains and of the XML (Extensible Markup Language) outperform their industry peers in return on assets. The flow of goods through today's supply chains is always at risk, thanks to static, batch-based planning that is often disconnected from a world of physical goods.

Supply chains must evolve into adaptive supply networks, in which trading partners use IT to sense and respond to market changes in a coordinated manner. This is what smart companies like Procter & Gamble, Honda and Dell Computer are tackling now.

Companies already active with software for supply chain planning and already using XML to exchange data with trading partners will likely be the earliest adopters of the adaptive supply network concept.

`Organic IT'

And then again, first movers toward `organic' IT demonstrate improved cash-flow growth. Organic IT, incidentally, is the term favoured by Forrester for the next computing revolution, an IT infrastructure that automatically shares and manages IT resources across applications, resulting in vastly simplified computing environments for the same investment. Those most frugal today in managing infrastructure will be the first to come on board. But why? Because the ability to do more with less is at the heart of organic IT.

Further, according to Pohlmann, `right-channeling' adopters have shown better revenue growth. Smart consumer companies retool their CRM deployments from `stovepiped' projects (those limited to one business unit or channel) into strategies that use IT to migrate customers to the right channels for the right transactions and interactions.

He states: "We profiled companies that in addition to having a CRM application are deploying integration, business intelligence, and content management technology.

These right-channeling candidates score higher on cash-flow and revenue growth than peers within their industry."

The winning combination

The strongest link to company performance, he adds, actually comes from the effectiveness of the corporate IT organisation.

"Forrester views IT effectiveness as a combination of three variables: first, the basics of bringing IT projects in on time, under budget, and to business buyers' satisfaction; second, clearly-defined relationships between corporate IT and its business unit counterparts, and third, a company's willingness to take risks on and to innovate with emerging technologies.

Companies meeting these criteria show better cash flow and asset performance. As a result, CIOs must consider a new breed of benchmark data to collect besides simply dollars and cents...."

ROI toolkits

Meanwhile, with every IT purchase, actual and potential, coming under careful scrutiny, some software vendors are trying to help CIOs in making the right decisions in a manner comprehensible to CEOs and the bean-counters.

Thus, the Orlando (Florida)-based Alinean has begun shipping ValueIT, a "return on investment" (ROI) toolkit which assists CIOs in evaluating IT projects on the basis of risk and potential return.

The well-known research outfit, Gartner, has also launched an ROI measurement software that it describes as "a Swiss Army knife of methodology tools" to forecast the viability of IT projects.

These software products are aimed at IT heads who have to demonstrate the potential for quick returns on technology investments in order to get CEOs and chief financial officers to sign off.

As far as the CIOs are concerned, these products haven't come in a moment too soon as IT spending is rapidly becoming discretionary...something which has to be justified by balancing expenses, maintenance and revenue growth.

As of now, ROI software is restricted to a niche market as it is usually designed to be part of a larger budgeting process.

It is designed for three categories of potential buyers: CIOs, software vendors who are often called upon to use ROI data in their pitches and service companies that have to help clients make decisions.

The big question now, loaded with irony, is: Will ROI software put tech consultants out of business?

The word is that it won't. For one thing, forecasting tools are addressed to an unknown market the future of which is anybody's guess.

For another, an economic recovery, especially in the West, may pump up technology budgets again — in which case notions like ROI won't count for much. But there are some who believe that a `cultural shift' has already taken place and that ROI is not going to disappear when the recession recedes for the simple — and excellent — reason that it takes the politics out of IT spending.

pratap@thehindu.co.in

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