Strategic Perspective Impacts IT Investment

While most business leaders globally are planning on keeping their IT budgets flat and there will be no growth in 2009, a recent market study by analyst firm Datamonitor reveals that in some countries, people are much more confident about their future outlook -- with planned IT budget increases exceeding the decreases.

“It is clear there has been a noticeable decline in enterprise confidence. However, the findings are not as negative as might have been expected”, says Daniel Okubo, technology analyst with Datamonitor.

“Despite the rise in the proportion of IT budgets which are remaining flat, there are still a sizable proportion of enterprises which are planning to increase IT expenditure. Technology vendors should be keenly aware that the economic conditions of a country directly impacts enterprise IT budgets.”

Reacting to the Downside
Datamonitor surveyed 520 IT decision makers towards the end of 2008 to gain a better understanding of how business and IT decision makers are reacting to the global economic crisis, and to gauge their confidence levels.

Across all of the 14 countries surveyed in the second half of 2008, there was a rise in the proportion of planned IT budget decreases compared to a similar survey conducted in first half of 2008.

The percentage of IT decision makers who plan to decrease their IT budget significantly in 2009 has risen to 8 percent from 3 percent, over the last 6 months. Apparently, confidence is lowest in the UK, France and Italy.

In these three countries the proportion of respondents planning to decrease their IT budget outweighs those that are planning to increase their IT budget in 2009. Noticeably, there are also a significant proportion of enterprises in the U.S. and Spain that are planning IT budget decreases.

Unsurprisingly all these economies are projected negative GDP growth in 2009.

Thriving on Strategic Anticipation
However, regardless of the bleak outlook for some countries, enterprises in Benelux, Nordics and Australia appear to be much more confident about their future outlook with planned IT budget increases outstripping IT budget decreases.

These economies are expected to be less affected by the economic downturn, with the exception of Iceland, and this is reflected in Datamonitor’s findings. Moreover, rather than invest in new systems and associated software, more forward-looking companies are now choosing a different -- more strategic -- path to meet their IT needs.

Preparing for the Upside
Business and IT decision makers that are evolving to the managed and hosted services model are typically more interested in raising their efficiency and competitiveness, beyond merely cutting IT and networking costs.

While they share their peer group’s concern with the current economic environment, they also are preparing to pre-position their organizations for the eventual recovery. Rather than totally dwell on the negative, they have the foresight to lay the foundation now – enabling them to quickly act upon the upside opportunities.

Managed Services Momentum Shifts to Mid-Market

While traveling across North America in recent weeks, I've heard about the same two-part trend from multiple sources: Some small businesses are reducing their IT service contracts and delaying outsourcing decisions. But on the flip-side, mid-size businesses are accelerating their move to managed services. These trends are pretty easy to explain.

Consider this: 18 percent of small-business owners in October said they were at risk of going out of business because of economic conditions, up from 9 percent in August, according to an American Express survey involving 602 businesses with 100 or fewer employees.

Even worse:

• 79 percent of small-business owners said sales are decreasing.
  
• About two-thirds of the respondents said the tightening of credit has affected their business.
  
• 51 percent said they have had to tap personal assets in order to pay business expenses.
  

With those concerns in mind, it's increasingly difficult for small business owners to focus on their IT strategies. They're so consumed by cash-flow issues, that they overlook the fact that managed services can deliver predictable, reliable IT services at a fixed monthly cost.

Let me be clear: Small business owners should embrace managed services as a way to improve their own cash flow. But many entrepreneurs will hesitate to do so because they are afraid to make any long-term financial commitments in today's economy.

Mid-Market Managed Services Boom
In stark contrast, mid-size businesses are accelerating their move to managed services. I hear this again and again from CXOs within mid-size organizations, and from managed service providers themselves.

The explanation is simple: Mid-size companies are eager to trim costs. Big, sprawling on-premise application projects are out of fashion. Instead, easy-to-deploy software as a service (SaaS) engagements are the rage.

But that's not all. Mid-size companies are investing in managed security, managed storage, and other basic services that no longer require full-time internal IT employees.

Yes, some mid-size IT staff members are going to lose their jobs as companies outsource more functions to managed service providers. But that was a trend even before the recession kicked in.

Fearless Migration to Managed Services
Instead of fearing managed service providers, IT staff members should closely evaluate their skill sets and develop expertise in such emerging areas as unified communications, telepresence and open source applications.

Nobody is immune to the recession. But mid-market IT managers who keep their skills sharp will mitigate the risk of losing their jobs, and wind up working more closely than ever with managed service providers.

A Boom in Managed Services - How to Prepare

New studies demonstrate the pros and cons of Business Technology deployments, especially as they relate to IT investments strategies.

First, the downside: in a recent study of IT management excellence, the results showed the continuing disconnect between finance and IT roles, and the value each one brings to the organization.

As the report states: "The lack of alignment within organizations is exacerbated by a lack of awareness on the part of both IT and finance about their own contributions to the problem. Nearly one quarter of the respondents report that discord between IT, business and finance is a frequent occurrence when making IT investments."

Why Clear IT Processes Matter
Lack of alignment is triggering a bigger cascade of problems relating to IT investment. For instance, sometimes companies excuse their lack of IT investment due to limited budget and resources.

In reality, "companies are unsure how to define or implement management processes, therefore they are unwilling to make significant changes and they allow other investment priorities to step to the front."

The temptation in this scenario might be to outsource the contentious area to a third-party to save money. This is exactly the wrong time to act.

Clearly, you have to get your own house in order before you take advantage of out-tasking, and then you have to apply strong governance to the service provider relationship. If you can't manage the process internally, you surely can't manage it externally.

Foundation for Competitive Advantage
Why do you need to get your house in order? Assume your competitors are going to act, and thereby gain an advantage from deploying managed services.

Forrester Research analyst Henry Dewing predicts in The Broad Opportunities in Managed Services that "macroeconomic factors, including rapid technology evolutions, a coming investment wave in IT, and market constraints on capital, increasing the attractiveness of managed services over the next 24 to 30 months."

In fact, Dewing proscribes the managed services model, represented by the confluence of faster technology change, a new technology investment cycle, and capital constraints. It's a proven way to take advantage of new technologies without capital investment -- while still having a hedge against increasing change.

Even more important, Dewing continues, "Given limited prospects for growth and the high cost of capital, Forrester believes that many businesses will turn to managed services to limit capital investments while increasing the flexibility of IT infrastructure."

Now, the upside: if you want to be in a position to take advantage of technological advancement to spur new growth -- while still hanging onto precious capital -- then managed services is likely the way to go.