IT Emerges Stronger from Recession

CUNA’s E-Scan Newsletter
June 16, 2010 | COMMENTS

Recession or no recession, corporate and IT leaders continue to see a key role for IT, especially in regard to capturing efficiencies across the enterprise. Many expect IT investments to grow soon.

Late last year, McKinsey & Company's fourth annual survey on information technology strategy and spending asked chief information and technology officers and additional C-level executives about their companies' business technology agendas, the impact of the recession on their IT organizations, and their approaches to developing and executing IT strategies.

The results affirm the continuing importance of IT to strategic success through 2010 and beyond. Chief information officers have felt strong pressure to deliver ever greater levels of efficiency in the downturn, but overall satisfaction with IT organizations remains high.

In addition, most respondents foresee an increase in IT investment, perhaps because companies are applying IT to solve problems across the business. And as technology-related disruptions continue to affect businesses, executives continue to push for closer integration between business units and IT.

IT's response to the recession

Executives both inside and outside the IT function perceive IT as offering strong value. Respondents indicate that IT has become more important to improving business efficiency and reducing enterprise costs than it was a year ago.

Running a tight IT organization remains important. IT executives, when asked about the actions they have taken as well as those they plan to take, indicate a strong preference for structural cost reductions:

• Three of their top four actions focus on reducing costs through efficiency improvements, including applications development, infrastructure consolidation, and contract renegotiation.
• Two-thirds of respondents report they plan to undertake structural cost reductions during 2010 and beyond.

Green IT programs, such as those that increase energy efficiency in data centers, have fared well despite the slowdown. At companies with a green IT agenda (almost half of those surveyed), more than 25% of respondents indicate they are accelerating their plans, and about half say their plans will be unaffected by spending reductions. Cost savings and reputation enhancement are likely behind the push to protect green investments.

Spending in the right place

Throughout 2010, projections for operating budgets follow trends seen in the previous year's survey. More than 60% of respondents expect IT operating expenses to decline or hold steady, reflecting a continued focus on “resetting” operating costs for an uncertain future.

Expectations for new investments, however, paint a different picture. More than 45% of respondents expect to increase investments, while about 20% see them holding steady. When there's a payback, it seems businesses are willing to invest. Many of these investments are geared toward improving business operations, both to lower costs and improve effectiveness, indicating that IT is offering value to the business.

Financial services firms lead all sectors with their spending and investing plans. Thirty-three percent of financial-services respondents expect to increase operating expenses this year (up from the 15% who expected increases last year), and 61% are considering an increase in new investments (up from 40% last year).

IT's effectiveness

The view from respondents who aren't IT executives suggests that they believe their IT functions are responding effectively to the recession and adjusting well to changing needs and priorities:

• Among non-IT executives, 55% say current performance in providing basic IT services is very or extremely effective—a small increase from last year.
• For higher-value activities, such as on-time/on-budget project delivery and proactive engagement from IT, the share of executives who say IT is very or extremely effective hovers around 30%, with another one-third indicating IT performance is somewhat effective.

IT executives' own view of their performance is less generous:

• Just under half of IT executives say their management of IT infrastructure is extremely or very effective;
• Only 30% say their IT governance is extremely or very effective, and
• Only 21% are happy with their ability to target places in their organizations where IT can add value.

Measured against previous surveys, IT executives' satisfaction with their performance is down across the board, including several categories that show double-digit declines. This drop is likely driven by a continued sense of frustration among IT staff, who are asked both to reduce their own costs and to help business units do more to improve operations.