Keep It Tight

By Kim S. Nash  |  Posted 2007-02-07 Print this article Print

Bigger technology budgets, plus savings from cutting infrastructure costs, mean CIOs have more money this year to make their mark.

Keep It Tight

While the places where companies will spend their technology dollars—and the amounts they spend—are sure to vary from one corporation to the next, there does seem to be an overriding consensus that the tight budgets developed in the past several years are here to stay. And the only way CIOs will get to help guide business strategy—and the kind of high-profile projects that can change companies—is by finding money for such things within the funding they already have.

"We really need to, at a lower cost, deliver more I.T. capability to our business," says Kim VanGelder, chief information officer at $14.3 billion Eastman Kodak in Rochester, N.Y.

"You owe it to the shareholders to process I.T. the cheapest way possible and still maintain quality," adds Nick Ibrahim, chief technology officer at the $1.3 billion Ruby Tuesday restaurant chain.

But how?

One way, says Bruce Skaistis, founder of eGlobal CIO, a consulting firm in Tulsa, Okla., is to replace older hardware with new multiprocessor machines that cost less. Or swap home-built applications for Web-based systems or software delivered as a service. But Skaistis knows it can be hard to rouse enthusiasm for such projects, even if the tech staff is convinced of the long-term benefits.

"You say, 'I want to commit $50 million to completely redevelop this application we've had for 20 years that's working OK.' And the organization is like, 'You want to spend $50 million to basically replace something we already have.'"

To get approval, he advises, take the time to lay out the mathematics of how and when the savings will come: "It's a hard sell. But more and more companies are realizing they have to do it."

The average North American company spent 68% of its I.T. budget to support existing software and hardware last year, according to Gartner. About 19% went to adding capabilities to keep up with company growth, and just 13% went to technology to propel the company into new markets or sell products and services in new ways.

But this year, watch for the proportions to shift. By cutting—or having cut—5% of spending on upkeep for the hardware and applications already there, companies should be able to add that much to "transformational" technology projects, Rubin says. The fun stuff.

In the media industry, for example, newspapers are experimenting with providing news continuously through multimedia Webcasts. "The business is changing the way it's delivering its product … with I.T.," he says.

At the opposite extreme is Alhambra Resources, a gold mining company in Calgary, Canada. Alhambra is mining 2.7 million acres in Kazakhstan and expects to increase gold production 25% in 2007. Even so, the company continues to lose money-—about $1 million in 2005, the latest year for which full-year results are available. It has also sunk more than $15 million into exploration and development. Until its gold harvest starts to pay off, Alhambra has to operate as lean as it can, says CIO Ihor Wasylkiw.

A small mining company typically runs more bulldozers and pneumatic drills than PCs and servers anyway. But Alhambra didn't even want the few dozen pieces of computer hardware it does use on its books. The company outsources all information technology to Calgary-based Impulze Computer Systems, Wasylkiw says: "We have 200 employees, and 150 are miners who work in dump trucks. I.T. isn't a big issue."

Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.

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