Smart IT budgeting

At Infoworld, it’s that time of year again, when fear and loathing haunt the hearts of CTOs: budget season. Along with the usual grinding pressure to do more with less, CTOs are confronted like never before with a surge of books and articles in the business press challenging the value of IT. After riling up the IT world a year ago with his infamous “IT Doesn’t Matter” article in the Harvard Business Review, Nicholas Carr is back with a book-length version of the very same argument ingeniously rephrased as a question: Does IT Matter? (Harvard Business School Press, 2004).

Carr is scarcely alone. Not too long ago, I happened to pick up the spring 2004 issue of the well-respected MIT Sloan Management Review and was confronted with Andrew McAfee’s provocative piece, “Do You Have Too Much IT?” McAfee quotes a Morgan Stanley study that estimates that between 2000 and 2002, companies threw away $130 billion of the IT they’d purchased.

With numbers like those, CEOs and CFOs have reason to be skeptical about IT spending. But CTOs have an opportunity to re-earn the respect of the business side. As I delve into next year’s budget, I’m observing a few principles to keep me on track.

First, the IT budget should always aim to meet the strategic demands of the business, period. Too often, IT managers enter the budget process focused on a year-over-year percentage increase to the overall IT budget and then backfill projects accordingly to hit a certain number. That kind of sandbagging is shortsighted. The more strategic approach is to work with the CEO and CFO and align your IT budget with the overall business strategy for the coming year. If that results in a budget increase, you’ll be armed with a buy-in from the top at the very start, rather than having to run defense when you ask for more.

But what if a leaner budget serves the needs of your company better? If you’re a CTO coming off a few years with large IT investments and your IT environment has been simplified through consolidation and good strategic choices, you might realistically be facing a flat — or even declining — budget. On the surface, this looks like a losing situation for a CTO, but in fact it could mean you can take credit for prior IT investments that are now paying off big time. There’s no law that states that IT budgets must always go up. If we’ve learned anything in the past few years, it should be that gross spending levels mean very little. Intelligent and focused spending is the real key.

If you’re lucky enough to have realized budget efficiencies through smart IT investments over the past few years, take the opportunity to look around and ensure that your employees have the equipment they need to do their jobs effectively. I’ve seen organizations in which desktop hardware has been systematically neglected in order to keep budgets lean, and although some money was saved, employees lost valuable time waiting for outmoded equipment to do its job. With rock-solid desktop PCs in the $1,000 range or lower, this cost-saving approach is sheer foolishness in most cases.

Ultimately, IT budgets should focus on spending that helps employees serve customers more effectively and that makes the company more successful in some demonstrable way. That’s the only way IT can continue to matter.