The Shrinking IT Budget

For over two years, TSIA has been imploring technology companies to close a growing “consumption gap.” This is the gap between all the great functionality available from a technology product and the actual functionality being consumed by customers. When this gap becomes too large, customers lose the incentive to purchase new technology because they aren’t able to leverage what they have already purchased. Now, there is second (very related) threat that is preventing your customers from investing in new product releases.  

When Did This Happen?

In Barcelona during our Technology Services European conference, I sat in a breakout focused on services innovation and services development. During the discussion, several attendees lamented the fact they were not able to secure new tools that could accelerate the services development process. Why? IT budgets were being totally consumed to simply support applications and infrastructure already in place. There was no incremental budget to support the implementation of the new applications required by the services organizations.

Now, I have to you, the irony of this situation was not lost on me. Here were senior leaders from technology companies, lamenting the fact that the maintenance of legacy technologies was crushing the ability to pursue new innovation. Uh, folks—who sold those legacy environments? You did.

CIO Survey Results

Now, part of me did not believe that IT budgets were so upside down. How can companies in general innovate if all of their technology dollars are spent simply maintaining existing stuff? Well, the reality is actually worse than I feared.

Deloitte Consulting runs an annual CIO survey. The most recent report from 2009 has two sobering facts. First of all, IT budgets are indeed being consumed by legacy costs. Look at the image below:

IT Budget Spending

So, these CIOs are already spending 70% of their budgets just to keep the lights on. Now, here comes the sound of the other shoe falling:

80% of CIOs in the Deloitte survey were in the middle of an IT cost reduction program.

So, how much money is left for new technology initiatives if the mantra is cost reduction?  You can download the complete survey results by visiting:

http://www.deloitte.com/assets/Dcom-Ireland/Local%20Assets/Documents/ie_Cons_CIO_Survey_1109.pdf

I have to warn you, the additional data points in the survey are just as depressing.

Now You Know Why

Companies aren’t using all of the technology capabilities they have already purchased. IT budgets are being consumed to support the ongoing maintenance of these under leveraged legacy environments. CIOs are being driven to reduce overall IT spend. Not a pretty set of circumstances. Why is “cloud computing” such a hyped concept in the IT industry? Because it offers a path out of this current disastrous landscape.  Hosted models create new options to reduce the cost of supporting IT environments. Cloud also creates a reason for companies to consider spending on a new IT initiative. Both of these facts excite technology providers. However, the unanswered questions for everyone from Microsoft to Oracle to HP to Cisco are not insignificant:

  • What do these new cloud consumption models mean to the overall business model?
  • How will these new cloud services actually be taking to market?
  • What service capabilities will be required to make sure cloud platforms become sticky with customers?
  • What services will be required to make sure customers can consume all of the capabilities of these new cloud offerings (and that a new consumption gap is not replicated)?

These are the questions I do not see the IT press or business press discussing. These are the questions keeping my colleagues and me at TSIA awake at night.

Advertisements

Tags: ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: