Companies are positioning themselves for long-term success by making strategic decisions now.
by Anne Ozzimo, February 2009
As the economic slowdown intensifies, executives are looking for ways to cut costs, and IT budgets are under the microscope. According to a September 2008 survey by the Washington DC-based CIO Executive Board, more than 60 percent of CIOs are re-evaluating their 2009 IT budgets, moving to cut back on near-term spending and putting longer-term commitments on hold. As a result, IT budgets are predicted to grow by only 2.3 percent in 2009, instead of the 5.8 percent growth rate originally forecast.
Rather than slash IT programs across the board, the CIO Executive Board is recommending that CIOs target their spending on those projects able to deliver the highest return on investment (ROI), from consolidation and simplification programs designed to lower IT’s long-term cost base to business innovation projects that will position their organizations for leadership when better times return. Not cutting back on critical infrastructure and business innovation projects is especially important: recent CIO Executive Board research shows that companies that excelled through the last downturn were those that reserved at least 5 to 7 percent of their IT spending for innovation.
For Oracle Chairman Jeff Henley, the current economic climate offers a perfect opportunity for companies to push through politically sensitive internal initiatives that can reduce IT complexity and costs today, while creating a single, integrated platform to understand your business better and roll out new products and services much more quickly to customers when the economy recovers. Last November, Henley shared his thoughts with CFOs who had gathered in Chicago for the fourth annual Oracle CFO Summit meeting. The theme was “Preparing for Better Times: CFO Strategies for Managing Through the Downturn.”
“Having been a CFO through several major downturns, I’m a firm believer that sometimes a crisis can provide you with an opportunity to transform your organization in ways that wouldn’t be possible during good times, because the circumstances demand that you create leaner, more-efficient operations,” says Henley. “That’s what happened to Oracle in the late 1990s, when our operating margins were under pressure. In 1998, we embarked on an initiative to consolidate 52 application instances into a single global instance, rationalize our data centers from 40 to 2, and standardize our processes worldwide. By the time Oracle had emerged from the dot-com bust in 2003, we had more than doubled our operating margins and created a strong, integrated platform to support our M&A [mergers and acquisitions] and organic growth strategies.”
Taking Information Technology Costs Out of the Business
As senior vice president in charge of applications development at Oracle, Ed Abbo estimates that he meets with close to 10 CIOs each month to better understand how Oracle’s application portfolio can help customers address their ongoing IT challenges. Recent meetings with CIOs have focused on two pressing needs: how to take IT costs out of the business quickly and how to deploy high-impact, high-ROI solutions to achieve near-term, very defined returns.
“Most customers I meet with now are really focused on how to run their business more efficiently,” notes Abbo. “That’s essentially taking costs out of IT by reducing the number of applications that they use to run their business.” Abbo estimates that most of the midsize to large enterprise customers he talks with still run hundreds or thousands of disparate applications, which means there is a lot of opportunity for customers to simplify their IT environments and dramatically reduce their costs. According to The Hackett Group, a global strategic advisory firm, the payback for reducing IT complexity can be impressive, with world-class IT firms able to run their IT organizations for 15 to 30 percent less than their peers.