RBC IT Spending Survey drives CIO Action

The RBC Capital Markets 2006 CIO IT Spending Survey is hot off the presses. As spending trends are likely to influence vendor success and individual careers, I see a few executives surfing for a new BMW while others are sprucing up their resumes.

Never mind vendors; how can CIOs squeeze value from the IT Spending Survey findings? The numbers suggest opportunity and pose challenges for the CIO.

For many CIOs, the continuing increases in projected IT spending will be a relief after the all-too recent recovery from contraction in IT spending. It’s been tough for CIOs to respond to business demands with shrinking budgets, and to staff clamoring for raises in a buoyant employment market. The spending increases suggest CIOs are achieving success in selling the business value of IT investments.

Do your IT spending priorities vary materially from the IT Spending Survey growth areas such as software and wireless? A material variance can not be immediately labeled as poor business alignment. Perhaps the variance can be legitimately positioned as excellent alignment with the immediate needs of the business. Conversely, IT spending priorities that closely parallel the IT Spending Survey growth areas may simply be indicative of IT spending priorities that follow the crowd like a herd of sheep. The value of the IT Spending Survey is as a checklist that a CIO can use to compare internal IT spending priorities against major cross-industry spending trends to look for gaps and missed opportunities to add value.

The CIO should champion an IT vision that articulates strategic benefits well above the tactical benefits of the IT infrastructure upgrade cycle. The IT Spending Survey confirms that the various components of the IT infrastructure are in a continual upgrade cycle. This is caused by advances in technology, demands triggered by increasing volumes of data, new applications and inevitable wear and tear.

The job of the CIO is to explain the link between the capital demands for IT infrastructure upgrades and the business initiatives that are triggering the upgrades. This is not an easy task in most organizations, where management wants to see substantially more capability for modest increases in cost. The CIO should let the IT infrastructure manager manage the tactical upgrade work.

One striking trend is that the days of the vendor called “Other” are clearly numbered. In every product category the spending trend is away from “Other” toward well-established, name-brand vendors. The rapid-fire emergence of many new vendors in new product niches that were born of the Web and the convergence of business and personal use of IT appear to be waning. Meanwhile some winners, like BEA, have matured into name-brand vendors, while others have become take-over targets like FileNet. The message to the CIO is to be wary of doing business with an “Other” vendor unless some large countervailing benefit exists that offsets the uncertainty risk.

I’m disappointed that the IT Spending Survey forecasts increased spending on security software. I’m outraged that security software must occupy so much of the IT department’s attention. The effort and money spent on acquiring, deploying and operating security software adds no value to the business or to the economy. It adds nothing to the quality of life of anyone. Viruses, spam and fraud undermine the performance of the Internet. I favour stronger penalties for those convicted of the related offenses. I also back stronger filtering of all forms of malware by the ISPs who operate the Internet backbone.

CIOs can contain the growth in spending by participating in industry and government initiatives to strengthen standards, expand laws and increase penalties for fraud and identity theft.

The IT Spending Survey shows that CIOs plan increased spending to outsource application development. Amateur hour is over in application development. High-availability requirements and the complexities of a multi-tier architecture have turned application development into work for which only experts need apply. I don’t believe that the more sophisticated development tools have overcome these expertise requirements. CIOs appear to have recognized the value of outsourcing more application development to specialist vendors.

The IT Spending Survey shows that despite the growing volume of outsourcing, some of it offshore, the amount of insourced IT work is still much larger. I’m still skeptical of the value of offshoring for small and most mid-sized projects and businesses. Offshoring costs are going up to the detriment of the business case. The cultural differences still pose a significant barrier. Too bad that the nearshoring benefits of Canada, for U.S. companies, have been eroded by our climbing Canadian dollar. The current low Canadian unemployment may push more work offshore due to lack of staff here.

The role of the CIO is make sure that the characteristics of outsourcing and offshoring proposals line up well with the areas where outsourcing can achieve benefits. The CIO will also push for an appropriate governance structure for the deal to ensure benefits are realized and to ensure signs of trouble are illuminated early when they can still be fixed.

The IT Spending Survey identifies IT investment growth areas where CIOs can add the most value when they lead the organization to make IT investments that realize strategic benefits. Conversely, unsuccessful CIOs are jettisoned when they exhibit excessive involvement in the constant, but low growth, infrastructure upgrade IT cycle.

On another front: Does the CIOs personal stock portfolio need to be rebalanced toward the winners among the vendors and away from the laggards?

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Jim Love, Chief Content Officer, IT World Canada

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