Budgets: the art of spending well

Be sure your investment strategy has a clear client focus said Ben Booth in Computer Weekly, 18 May 2005.

Until recently the recurrent theme for most industry sectors was one of retrenchment, with a consequent freeze or reduction in IT spending.

Now, despite the fashionable argument that IT investment does not improve profitability or provide competitive advantage, it seems the brakes are being taken off and chief information officers are being encouraged to spend in support of business growth.

Although IT directors will have had plenty of practice in reducing costs, the change to expansion will require new approaches.

They will be familiar with the options for cutting expenditure, including consolidating disparate support contracts with a single supplier, developing novel relationships with suppliers, deferring anything that can sensibly be put off, and cutting out services and processes which are no longer required.

Insourcing, outsourcing and offshoring may all have a part to play. New technological approaches can be tried. For instance, thin client, which removes the cost of supporting fully functional PCs on the desktop.

Overall, this is a thankless task as, despite a business driver to reduce costs, the immediate effects may be inconvenience to IT staff, business colleagues and external clients alike.

Furthermore, there is the danger of cutting back on essential renewal so that a business can fall too far behind the curve of technological progress to catch up easily.

Having seen two periods of excessive technology expenditure in recent years, it would be foolish to imagine this will be repeated again, at least not while there are so many senior executives in place who bear the scars.

Investment challenge

The challenge therefore for IT directors is to propose investment that is closely linked to business objectives. This seems like common sense, but it is not something we have necessarily been good at in the past.

The disjunction between IT and business strategies has been largely to blame: IT staff, ignorant of business drivers, have determined the investment programme, unchallenged by non-technical executives who did not understand fully what was going on.

It is this close link between IT and other elements in an organization that is key to both growth and, where necessary, reductions in spending.

There remains much discussion about the need for IT to be 'properly aligned to the business', and in many commentaries this is presented as a formal analysis whereby the business strategy is reviewed with subsequent development of the IT strategy.

The disadvantage of such an approach is that it presupposes the existence of a formal business strategy at a level of granularity to determine the IT strategy.

Furthermore, there will inevitably be a delay while the IT strategy is developed. Far better for the IT strategy to develop in parallel to business strategy through a close working relationship.

Improving service

Suitable areas for IT investment will be new product development, improving service to clients, and on systems to acquire and retain clients. There may also be some opportunities where technology can reduce costs, though the majority of these will already have been identified.

There may be differences of emphasis between public and private sectors, but these are lessening as the public sector focuses increasingly on quality of service.

It will be easier to justify expenditure that is linked to client-facing or revenue-generating objectives rather than to back-office process improvements, however cost-effective.

During the recent periods of restraint most businesses will have reduced infrastructure expenditure, perhaps to a level that introduces risks of failure or obsolescence. It is now time to address this, but in ways that will support client-facing developments.

In this new climate of growth the secret of success for the IT department is to remain focused on areas that will give maximum business benefit, while exploiting the opportunities for essential infrastructure renewal.

A close working relationship with business colleagues will ensure what is done enhances the business proposition. If this is successful then this will be good for the reputation of IT providers, and will go some way towards re-building damaged confidence.

Ben Booth is chairman of the BCS Elite group and chief information officer at Mori.