According to recent surveys by Merrill Lynch, Morgan Stanley, and others, technology spending will increase next year, but IT budget enhancements will remain modest—3 to 5 percent at best.

With this in mind, I’ve been talking to CIOs and IT managers about their priorities during this period of recession, stagnant budgets, and the post-dot-com era. I’ve put their responses into four buckets.

Cutting IT costs
Yes, companies are decreasing spending and improving efficiencies with such ideas as data center consolidation, but creative CIOs are going well beyond the obvious. One IT manager spoke about using this slow period to master Web services development so IT could deliver applications faster while creating reusable software components. Another CIO talked about exploring low-cost IP options, such as VPNs to replace frame relay and VoIP as a substitute for POTS.

A VP mentioned the use of Citrix servers to cut installation, licensing, and management costs of desktop applications. Another told me that his company was replacing laptops with a combination of standard PCs and BlackBerries because it found that the only application road warriors cared about was e-mail.

Each situation is different, but I see some common threads among these priority lists. There weren’t any “blue sky” projects; rather, each effort was based on in-depth analysis of business needs, available technology options, and ROI calculations. In other words, technology was seen as a means to an end (lowering costs), rather than an end in itself (implementing cool technology).

Transforming IT into a service for the business
We’ve heard this one before, but I find that there is real progress now. Unlike circa 1999 hype, when IT services translated into the addition of some immature management tools, CIOs are taking a holistic look at the IT organization, operations, and technology infrastructure.

I’ve heard about new projects, such as creating a common application integration layer to speed system development or using networked storage technologies to build a common storage pool that can be shared among multiple business units. Another big change is within the IT organization itself—CIOs are transforming traditional horizontal networking, application, and systems groups into cross-functional teams responsible for critical business applications.

Some IT departments are backing this organizational transition with a corresponding change in compensation, tying IT bonuses to service-level delivery. It’s still early, but these organizational changes are enhancing morale, advancing cross-training, and improving service delivery.

Protecting IT and corporate assets
A new world of threats is forcing CIOs to spend a lot of time, money, and effort on business continuity and security. In such industries as financial services and healthcare, government regulations mandate substantive changes (e.g., the Graham-Leach-Bliley Act and the Health Insurance Portability and Accountability Act, or HIPAA). And there’s no getting around the fact that the Internet has simply made things more dangerous. According to Carnegie Mellon University, computer viruses alone cost companies $15 billion in 2001. CIOs realize that aligning IT with business needs goes hand in hand with protecting the data and keeping the bad guys out. There is a Zen-like focus on these areas.

Getting closer to the business
Here is another tired IT cliche that finally has some teeth. The CIOs I spoke with are going beyond corporate strategy and dedicating time to business tactics as well. They’re continuing their involvement in strategic discussion on future products, new business opportunities, or customer services, but now they want to know about day-to-day business challenges. Are any layoffs planned? Will employees be moved to different facilities? Can various departments navigate the corporate portal effectively? Has the staff received adequate training?

By understanding what’s happening with technology in the corporate trenches, IT managers tell me they can make better decisions on technology directions and the pace of change. As one CIO put it, “We never understood why we didn’t get more ‘atta boys’ for developing the sales portal until we took the time to find out that no one uses it.” The whole IT department is much more sensitive now to the use of technology—not just to the implementation of technology.

At times, we reflect on where we are, what we’ve done to get there, and where we go from here. Clearly, this is one of those times for IT. If CIOs can cut costs, offer services to the business units, and better understand daily business challenges, it will better serve the big three constituencies—shareholders, customers, and employees. We may not be getting rich anymore, but this is certainly a more noble and altruistic philosophy than the exaggerated “your competition is one click away” hype we adhered to in the 90s.