This article is part of the Business IT Series in association with Intel
This year will bring significant challenges to IT managers as enterprises face an increasingly tough economic climate. Several strong trends are emerging.
Slow growth in the private sector and severe cuts in the public sector funding mean IT professionals will be required to run a tight ship without any significant increase in budget, and to extract incremental performance gains. But at the same time, there is a requirement for them to provide the innovation and infrastructure that will foster growth and/or radically transform the way services are delivered. Technology such as mobile computing, cloud and Software as a Service, virtualisation and business social networking, all have a part to play in delivering this business goal.
The main change, from last year, is that 2011 began with a more robust and hopeful IT spending environment. However, as economic forecasts worsened, many technology organisations were forced to revise their plans and rein-in IT modernisation. The forecasts for this year look to be even more conservative against the backdrop of global financial uncertainty.
"Given the budget constraints that many IT organisations have been under, and the previously growing list of deferred upgrades and refreshes, 2011 was expected to be a year where IT budgets experienced some healthy growth," says Craig Symons, principal analyst at Forrester Research. "However, the early forecasts proved to be too optimistic and new problems have emerged, including a sovereign debt crisis in the Eurozone, rising inflation in China, and the threat of a double dip recession in the United States."
In a survey of 2,800 IT executives and technology decision-makers across the world, Forrester Research detected a shift away from improving or streamlining business processes, which had been the top priority for both enterprises and smaller businesses last year.
Instead, improving the efficiency of IT tops the list for enterprises this year, with a focus on processes taking second place.
Business process management (BPM) remains a high priority for CIOs in 2012, according to Neil Ward-Dutton, co-founder and research director at analyst house MWD. He argues, "BPM is all about improving the way that work gets done – and that has clear implications for minimising costs, minimising time to market, increasing agility and maximising competitiveness. As in 2011, BPM practice will shine its light most strongly where it can impact customer experiences."
The third priority for enterprises is increasing IT capacity and resources to drive business innovation. Forrester expects enterprises to increase their spending by 40% on research and development for emerging technology, driven by the proliferation of mobile and cloud computing. These two types of technology in particular have the capability to enhance the customer experience as well as improving the sales and service channels; while increasing IT agility and efficiency, and offering a cost-effective way to expand the IT infrastructure through managed services.
Meanwhile, enterprises are expected to increase the percentage of their expenditure on ‘new initiatives’ to more than 30% of the IT budget, which was the average percentage expenditure in 2011, says Forrester. This compares with around 50% of the IT budget allocated to support on-going operations and maintenance, and 20% of it being invested in expanding the capacity of the IT system to support business growth.
The fourth management concern is lowering IT operational costs in order to free up money for new initiatives.
Improving customer management capabilities is a fifth goal, aligning with the need to support business growth through customer retention and new business.
Forrester also tracked the top five technology priorities for enterprises in 2012, and these demonstrate how businesses intend to drive the five IT management priorities outlined above.
The top priority is to consolidate IT infrastructure through data centre and server reduction or virtualisation technology. This has been a major preoccupation of the past decade or so, and has brought significant cost and efficiency savings to many enterprises.
Second is to increase the use of business intelligence and decision-support tools. Helena Schwenk, who leads the Analytics and Information Management research programme at MWD, concurs that CIOs will continue to heavily utilise analytics and information management technology this year.
“That’s because, as companies brace themselves for further economic headwinds, many find these systems provide one of their best lines of defence by helping to catch, retain and focus on their most profitable customers, enhance cross-/up-selling, negotiate more skilfully, improve productivity, reduce service costs, and pinpoint areas of the business for cost-cutting.”
The third technology priority, according to Forrester, is to maintain or implement infrastructure virtualisation and automation as the primary implementation model. This will enable organisations to extract incremental performance gains from their IT systems, and use existing resources in a cost efficient manner.
Priorities four and five are to significantly upgrade disaster recovery and business continuity capabilities; and upgrade the security environment.
Symons at Forrester notes that, surprisingly, enterprises did not count expanding the use of mobile/tablet applications as a top priority, even though they had last year. He surmises that “the uncertain economic outlook” has put the emphasis back in some business leaders’ minds “on cost reduction and efficiency for IT”.
Forrester also detected a shift in how technology leaders are spending their IT budgets. In the past, budgets have fallen into six main categories in Forrester's calculations: full-time staff, software, hardware infrastructure, third-party technology services, telecoms and network services.
However, for 2012, the analyst firm added a seventh category, contractors, because expenditure on contractors comprised around 10% of enterprise IT expenditure in 2011, which was almost as much as the budget for third-party IT services.
Symons said: "In future years we expect to see the contractor and third-party service accounts to grow as organisations avail themselves of disruptive alternative sourcing options (Cloud, managed service providers, etc.) and increase their use of contractors to enable faster scaling up or down in response to market dynamics."
Another new budgetary trend centres on ‘shadow IT spend’, particularly spending on mobile technology. Forrester's study found that in 2011, there was a significant rise in IT-related spending that was occurring outside the IT department, in other words directly by the business itself. Almost 70% of respondents said that they had some degree of IT spending directly by the business, while 12.4% reported that this spending was as much as a quarter of the total IT-related spend.
This has IT management implications for technology leaders, partly because they may well be expected to support and integrate technology coming from other parts of the business. But there is also a need to improve governance, to ensure that total spending does not get out of control through shadow expenditure, says Symons.
Analyst firm Gartner carried out its own research amongst 2,300 CIOs, and found that their top five business priorities in 2012 are, in order of importance, increasing enterprise growth; attracting and retaining new customers; reducing enterprise costs; innovation; and delivering operational results. These priorities are broadly consistent with Forrester’s study.
Gartner said that it is worth noting that CIOs rank growth and customer-focused activities as their top priorities, despite the tough economic conditions in which they are operating and the fact that they face future uncertainties and have relatively stagnant IT budgets (European enterprise IT budgets are down 0.7% on average, between 2011 and 2012).
“The 2012 Gartner CIO Agenda survey results show that CIOs believe that the customer experience is the greatest opportunity for IT-enabled innovation,” says Dave Aron, vice president at Gartner. "As business executives see the potential of technology to transform customer channels and the customer experience, their view has leapfrogged conventional ideas of IT."
Technology is playing an increasing role in enterprise growth, innovation and operational performance while its definition now incorporates new combinations of traditional systems, consumer devices and their respective services, said Gartner.
Mark McDonald, group vice president for Gartner Executive Programs, said: “Applying technology as part of amplifying the enterprise reflects both the changing nature of business strategies, and executive expectations about the role of technology in realising those strategies.”
He added that mobility, social media, analytics and business intelligence can be used to “re-imagine the customer experience, as well as sales and service channels. This technology does more than automate or administer processes; it is the processes and the sources of value”.
The detail of the challenges faced by IT professionals varies from organisation to organisation and from economic sector to economic sector. However, those that will come out on top are the ones that can drive down operational cost and wield cost-efficient technology in a way that will allow innovation in business processes and channels.