Interviews with CIOs who participated in the study suggest that more and more companies are moving toward tracking this ratio, so CE expects the percentage of companies doing so to rise in future surveys. There are a number of strong reasons for tracking new-initiative spending versus ongoing-support spending:
It improves efficiency. There is a tendency to forget about what you have been paying for year after year. Last year, CIO Doug Bond of Century Insurance Group put systems in place to track spending on ongoing support and found that it focused attention on reducing expenses. “On an ongoing basis we’re continuing to monitor it to make sure that the ratio is dropping,” he said in the report.
It demonstrates the value of IT. Identifying spending on new initiatives demonstrates to the CEO and other top managers what IT is bringing to the table as it requests new funding. “It sells IT as a value-add,” said Michael Crowley, former CIO of C&D Technologies, now principal of Michael Crowley Consulting LLC, in the report.
It helps set budget priorities. A new-initiatives budget enables top executives to set priorities for spending from among competing investments being advanced by various business units. “It’s easier to get the right priorities,” said Bob Dulski, director of information services for the Chicago Zoological Society, in the report.
It promotes infrastructure investment. IT managers can more easily demonstrate gains in efficiency and sell budget approvals for critical infrastructure investments by demonstrating ROI. Being able to show how IT spending has risen as a result of business growth or last year’s new initiatives also helps decision-makers focus on spending that is discretionary.
The ultimate goal of tracking this key ratio is to improve the spending mix and free up more money for innovation and infrastructure reinvestment. In today’s climate, IT managers need to be prepared to constantly glean efficiencies from their “keep-the-lights-on” budgets in order to fund innovation.
The conundrum is that a company that fails to reinvest in its infrastructure will become less efficient, and an inefficient operation will not be able to sustain investment in innovation. It is a downward spiral that has the long-term consequence of becoming increasingly uncompetitive.
“It’s a relatively simply measurement system to put in place, although the devil’s in the details, but it can benefit the CIO tremendously when it comes to defending his IT spending and demonstrating the business value of IT, said Scavo.
“If you don’t track any other numbers at least you should be able break out your IT spending on these two components.”
Methodology
The study is based on interviews with IT executives and a survey conducted in October and November 2007 on IT budgeting. The study analyzes responses from 112 IT executives representing companies with annual sales between $30 million and $100 billion.
Forty-five percent of our respondents are from large companies with more than $750 million in revenue, 25% represent midsize companies with $250 million-$750 million, and 30% work in small companies with less than $250 million in revenue.