A bumpy ride ahead

Enterprise IT executives are taking the economy's downturn in stride. This not being their first time at the rodeo, they know how to take the bull by the horns.

High-tech leaders looking out over the year anticipate tightened budgets, greater demands on limited staff and tough negotiations with business managers about which needs technology can meet during this financial crisis. (Read analysis of our budget survey.) What they don't anticipate is a repeat of their experiences during the industry collapse of 2001, when IT executives took backseats while CEOs decided the direction of their corporations' technology use.

“The last time IT experienced this type of economy, the budget cuts were more punitive in light of high-tech seeing double-digit growth for years,” says Robert Whiteley, a principal analyst at Forrester Research. “IT basically gutted itself and, from a skills and alignment perspective, has been paying for it ever since. Now IT is going to be smart in the cuts and offload noncore functions, while maintaining necessary resources.”

That's why many IT executives view today's economic uncertainty more as an opportunity to stretch their muscle, and less as an uncontrollable force. Some say they even feel empowered to guide business leaders via strategic technology decisions that improve the bottom line.

Many IT leaders, for example, are investing in software-as-a-service (SaaS) – which involves providers delivering applications via a hosted, subscription-based model – to bring killer applications in-house without breaking the bank. They're changing service levels to require less immediate help desk responses for calls that aren't business-critical. And some are rolling the dice and cutting back investments in disaster recovery to facilitate increased mobility for workers.

The point is, IT executives can lead the charge to optimize services with less money.

“One should never turn down the opportunity to exploit a crisis, and IT organizations are more willing today to take a risk to get a benefit,” says Peter Whatnell, CIO at Sunoco and president-elect for the Society for Information Management.

Where's the budget?

IT budgets indeed have shrunk for 2009: In a survey of Network World readers, roughly one-third of 123 respondents said they intend to keep IT spending at 2008 levels, and another 43% said they will spend less (see “IT budget '09: Spending down and contingencies at the ready”). IT organizations face a lean, challenging year of providing more services with fewer resources.

With shriveling IT budgets, spending forecasts for 2009 have fallen, too.

Gartner has dropped its worldwide IT spending estimate for 2009 from 5.8% to 2.3%. Forrester has adjusted its U.S. technology-spending predictions for the year from 6.1% to as low as 2%. And IDC has ratcheted down its global IT-spending growth projection of 5.9% to 2.6%. U.S. spending won't grow as much as 1%, IDC predicts.

Today's IT executives, however, are financially smarter and savvier about business than they were eight years ago. They still haven't reached the nirvana of complete business-IT alignment, but this year will provide IT executives with the chance to showcase just how far they've come.

Ken Harris, CIO at Shaklee, a maker of natural nutrition, cleaning and personal-care products in Pleasanton, Calif., sees the situation this way: “IT has become a standard part of the business. It is embedded into many aspects of the company, and can't easily be extracted at this point.”

IT can't be left out of big-picture budget discussions either. “It's less of a situation now where someone from the business dictates to the CIO about cutting budgets 20%, and more about how IT as an organization finds ways to advance the infrastructure and add value – even as budgets are being tightened,” Harris says.

Susan Cramm, president of IT leadership consultancy Valuedance, agrees,

“IT has positioned itself as being much more cost-conscious, and the business doesn't look to IT as though it's completely out of control, buying technology for technology's sake,” Cramm says. Previously CEOs just might have cut the budgets; now they are telling CIOs the numbers they need to reach and trusting them to figure out the best ways to get there. That's a good thing.”

IT has more options at its disposal than ever before to weather an economic storm. For instance, SaaS and cloud computing offer IT organizations variable pricing models and much-needed technologies at a lower cost and faster time to market. Virtualization continues to let IT consolidate physical resources, which lowers power, cooling and other costs and increases services to the business. With far fewer dollars to spend on new investments, IT organizations will have to be creative this year to succeed.

At Shaklee, signing on for Virtela Communications' managed network services has let IT add value without burdening the budget. The company needed to expand quickly from five countries to 50 and distribute its products globally.

“Budgetwise we were not going to be able to bring professionals with the right skills on board, and we needed to achieve the business goal of going global,” Harris explains. “By choosing managed services, we got there without having to make significant investments in technology.”

Strategic spending

IT organizations this year will be examining which technology investments serve the business best and which might be better left on the back burner.

“With every project we approach, we now consider closely how it helps us build efficiencies within the organization. And if it isn't going to provide us with efficiencies to do our work better or reduce overhead while improving services, it won't make the cut,” says Devon Chalmers, CSO at PBS&J, an architecture, construction and engineering firm in Atlanta.

A wireless overhaul passed the efficiency litmus test – the firm has 90 offices nationwide with a very mobile workforce – and so it has the spending go-ahead for the coming months, Chalmers says. By implementing a next-generation, 802.11n system from Aerohive Networks, he will be able to provide more centralized control, security and efficiencies in PBS&J's wireless environment.

“We bring up offices all the time. Our engineers, architects and construction staff need to be mobile so they are not stuck without access to their work,” Chalmers explains. “To support our users, we need to create a centrally managed, autonomous environment.”

The opposite is true for Michael Morris, communications engineering manager at a $3 billion high-tech company and a Network World blogger. His company deferred plans for a wireless infrastructure upgrade and a WAN-optimization rollout to focus on IT projects that will save the company money.

“It's getting harder to justify infrastructure activities that potentially could enhance productivity for the entire organization but are difficult to tie back to a specific business unit,” Morris says.

Vetting various cost options

Being able to vary IT expenses is especially critical in a down economy. This year, more than ever, IT executives will be weighing whether to buy technologies outright or pay for needed capabilities via subscriptions.

More enterprises will put together their core packages of enterprise services using internal and external virtual or cloud resources,” says Phil Hochmuth, a senior analyst with Yankee Group. “The virtualization concepts that are reshaping enterprises – decoupling applications, operating systems and services from physical hardware and locations – will extend beyond the enterprise perimeter.”

SaaS already has taken off, and industry watchers expect this trend to continue. Gartner expects the technology's worldwide spending uptick – which at the close of 2008 stood at more than $6.4 billion, or a 27% increase from 2007 – to continue this year and beyond. The research firm forecasts the market to more than double by 2012 to $14.8 billion.

In addition, cloud-computing technology is expected to see rapid adoption in light of the current economic condition (read “Nine hot technologies for '09”).

By 2012, IDC predicts, dollars spent on cloud-computing services will account for 25% of the growth in IT spending worldwide and almost one-third of 2013's growth. The research firm also expects that by 2012, nearly 10% of IT spending will be on cloud offerings, including SaaS and cloud storage. IDC also forecasts that spending on IT cloud services will reach $42 billion by 2012.

“Just as virtual servers are easily brought online, moved around and deprovisioned in an enterprise cloud, businesses will look to bring in pieces from externally hosted sources, whether those are SaaS business applications – such as Salesforce.com, storage, backup and disaster recovery – or security services, such as filtering and inspection technologies,” Hochmuth says.

Cloud storage, along with grid computing, is a top priority this year for Alex Godelman, vice president for technology at Gorilla Nation, an online-advertising sales representative firm in Los Angeles. The promised efficiencies of such technologies bring business and IT leaders together, and that eases planning during an economic downturn. Cloud storage software, such as from ParaScale, would prevent vendor lock-in and lessen the investment he would have to make in a high-priced storage infrastructure, he says. (Read a story on trusting stored data to the cloud.)

“If you look at a traditional mass-storage environment, you invest in a [storage-area network] framework and can grow it to a certain extent, but beyond that level, you would need to do a forklift upgrade,” Godelman says. “With cloud storage, when you need more capacity, you add another component to the cluster of low-cost components. You repurpose existing hardware investments and make a very insignificant software investment.”

Cloud computing remains an emerging technology, and many in IT aren't comfortable with storing company data in an external location; the lower cost and proposed efficiencies, however, will override those concerns this year.

“We will be focusing on our core applications and looking to see what makes sense to outsource so we can cut administrative costs. SaaS can cut costs, but it introduces a risk in putting company data elsewhere. But in this economy, we will consider riskier options [such as software-as-a-service] simply because they make sense financially,” says Jeremy Gill, CIO of Michael Baker Corp., a civil engineering firm in the Pittsburgh area.

This year also will see IT executives carrying on the 2008 trend of reworking existing systems and networks for optimal performance. This they'll do in lieu of buying the latest and greatest hardware. (Read a tips story on how to optimize IT.)

Blogger Morris' company has completed all the research around a syslog project that involves dedicating network staff to engineering and architecture work that could boost performance, he says. “It is all about cost savings. Projects are being slashed left and right, so we are turning toward internal projects that don't require us to spend money right now,” he adds. The company also will look for ways to limit external conference calls and use internal resources that cost less.

“With external projects on hold, it frees up my team to improve processes and look for ways to introduce more automation in the environment,” Morris says. “We may get a lot of projects cut, but we have a lot of work we can do, such as routing-protocol optimization, that doesn't require anything but labor and could drive revenue with improved business processes.”

Others are sticking to planned projects, but negotiating with vendors to get better prices or extending the life of the project to lessen the blow to this year's budget.