Even if the recession hasn’t directly hurt an organization’s bottom line, current market conditions and belt-tightening have CEOs and CFOs scrutinizing IT spending more than ever these days—and the scrutiny isn’t just on the big-dollar projects.
“We find any deal of any size is being scrutinized three times as much as two years ago,” said Ron Zambonini, CEO of Cognos Inc., a business intelligence software firm in Ottawa, Canada. Zambonini was one of several business leaders discussing the subject during the CIBC World Markets Enterprise and EBusiness Software Conference in New York City in August.
Zambonini cited an example in which a Fortune 500 CEO signed off on a $350,000 deal, and another in which a vice chairman attended a demo of software Cognos was trying to sell a huge company.
“This was a member of the board, of a Fortune 50 company, actually looking at an application that was being built. That was funny,” he recalled.
It wasn’t ha-ha funny, but funny as in unusual, as most corporate leaders typically focus on the mega-million-dollar deals and leave smaller budget decisions for lower-level managers. It’s impossible to declare that the new scrutiny is either good or bad, as it does bode well for tech leaders seeking quicker decision making.
For instance, early buy-in by a forward-thinking and progressive CEO may increase the chances that a project will move quickly and will quell opposition. Conversely, a by-the-book CFO who looks for any reason to nix a capital expenditure is clearly bad news.
A new trend to track
It is possible to make definitive statements about two things, however: This is a trend CIOs must be aware of, and it is one they need to deal with.
It creates a new opportunity to build bridges with the financial side of the house, note industry analysts. The key to a good relationship with top leaders is demonstrating that money spent has a clear-cut ROI.
“I think the CIOs had better be very well connected for major projects,” said Henry Morris, the VP for applications and information access for IDC Inc. “They have to presell to the CFO and the financial management of the company.”
Preselling, however, is only half the battle. The heightened scrutiny will likely continue after approval—not a honeymoon scenario.
“If you do get approval for the investment, you must be able to show results much faster,” Morris explained.
The budget oversight trend goes far beyond superficial involvement and also may demand a level of financial sophistication that may be new to many CIOs.
“In [late] 2000-2001, it became a requirement not to just estimate ROI but to almost guarantee it,” said John Hagerty, a VP at AMR Research Inc. “In lots of cases, the CFO became the new sheriff in town.”
The trend’s trickle-down impact
The ascendancy of the bean counters is one reason that projects with clear ROIs are being favored over big, amorphous (albeit vital) projects with fuzzy payback metrics.
“One of the things I see, going forward, is a lot more pragmatic buying, looking for things to solve specific problems, and looking for that in smaller bites,” Hagerty added.
Many IT departments have been fortunate at least in one respect—most have already done big, building-block projects. These projects, which essentially create the infrastructure that needs to be in place for the task-specific applications, weren’t ROI champs. Serendipitously, many were implemented when the money was flowing more easily.
The projects many enterprises are embarking on today are those in which ROI can more easily be demonstrated. Zambonini and Morris say this is one of the reasons that business intelligence software efforts, which are often implemented to solve specific problems, are a bright spot in an otherwise dismal year.
The new relationship between CIOs and the boss will also revise the relationships in place between CIO and vendors. Software and hardware suppliers are realizing they need to position themselves to help the CIO prove to the CFOs, CEOs, and bean counts that the purchase is necessary—which is obviously a big help for tech leaders.
“We can help the buyer put some numbers together to present to the people above,” Zambonini said. “The vendor can help the CIO sell to a higher level.”