How smartly are you spending?

There's a new digital divide growing between companies which saw powerful return on investment from their IT spending against those that did not.

N. Nagaraj

Krishnan Thiagarajan

FOR the Indian software industry looking for concrete signals on the recovery of IT (information technology) spending by companies across US and Europe, a recent survey by CyberAtlas Research provides some hope. The survey, conducted across two different panels of high-tech CIOs (Chief Information Officers) of US and European companies, reveals that IT spending in the US and Europe hit rock bottom in 2001 and is expected to rebound by the second half of 2002.

Based on the current economic conditions, the capital spending on IT by companies in the US and Europe is slated to increase by 2.4 per cent next year. But the trends also reveal that Europe is likely to surge ahead of the US in the first half of 2002, while the spending by the US players may remain soft during this period. Among the major initiatives which may attract IT spending are security and wireless endeavours in the early part of the year 2002.

Click here for Chart

However, by the third quarter of 2002, with a distinctly bullish undertone to the economic outlook, the IT spending is likely to stage a resurgence. The CyberAtlas team believes that the trigger for the revival in the wave of IT spending may be the Federal government. With growing pressure on the US Government to supplement its monetary policy with a fiscal stimulus package, this package is likely to help create a wave of IT spending, starting with the third quarter of 2002.

This is an enlightening reassurance for the frontline and medium-sized companies which are awaiting large-scale offshore outsourcing of a strategic nature, constricted in the recent past by lowered IT budgets. As these surveys reveal, these players are also banking on the fact that the recession in the US economy, which has led to longer sales-decision cycles, pricing pressures and diminishing order flows, may only remain a near-term phenomenon. Interestingly, in an Information Technology ROI Study commissioned by Unisys in October and November this year, senior-level IT professionals from a range of industries perceived that there was a ``new digital divide'' growing between companies which saw powerful ROI (return on investment) from their IT spending against those that did not.

Obviously, companies which spent the IT money smartly were on the right side of the digital divide as against those who focussed on ``how much'' rather than ``how smartly'' the money was spent.

In a startling revelation, nearly three-quarters of respondents said that companies were more willing to invest in IT in 2002 than they were in 2001. To supplement this view, 40 per cent of respondents stated that the 2002 IT budget is likely to increase while 43 per cent said that it will remain the same as 2001 budget.

Basically, in the business world, companies with similar financial resources are separated by how prudently they put these resources to use. This is based on the measurement of ROI in terms of how much these companies get back in return for every investment made in IT. In this survey by Unisys, the respondents' perception of their companies' ROI from technology spending was aggregated into three heads:

* ROI Surgers: 43.5 per cent of respondents said that they were experiencing positive ROI.

* ROI Stagnants: 42.5 per cent of respondents said that they were experiencing nominal ROI.

* ROI Strugglers: 14 per cent of respondents said that they were experiencing negative ROI.

Among this group, only the Surgers identified increased efficiency and cost-effectiveness as ROI benefits from their technology investments.

According to the survey respondents, the reason for the drag on ROI investments was mainly because the companies' top IT priorities did not actually get funded. For instance, most respondents felt that ``e-business'' was not the topmost priority in many companies, but invariably was well funded.

In stark contrast, ``increasing productivity, performance and efficiency'' was generally identified as a top priority, but often did not find adequate funding.

Such startling contradictions continue to prevail and call for closer scrutiny by CIOs and CEOs in different companies.

And this trend was exacerbated when investments were made in wrong technologies and there was a lack of adequate focus on IT spending in strategic areas.

eworld@thehindu.co.in