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A Critical Eye on Productivity

IT spending as a percentage of GDP has undulated through a series of long cycles since the dawn of the computer age, with the ratio changing over a range of almost 40%. Each cycle was precipitated by a major IT trend, and we're on the upswing of such a cycle now. The trend driving it is the SOA-and-mashups phenomena, and that could be good news for just about everyone because it's a trend that involves both IT and networking investment, both voice and data.

Another piece of good news is that in the history of this long-cycle process there are no examples where a recession created a break in the cycle. In fact, there is no indication that the ratio of IT spending to GDP drops more often than it rises in such a period. There is one notable exception: the bubble-and-9/11 period. That says that if we had a true catastrophe here we could expect a budget nuclear winter. Frankly, there's not much point in planning for that one, so we'll focus instead on another "exception".

In every recession in the IT era, there has been a dip in relative IT spending one to three years after the recession in 100% of cases. Why? Because the economic uncertainty impacted not the current project spending, but the planning for projects that would fuel IT investment down the line. Project plans being conducted in a period of economic uncertainty are obviously going to be very pessimistic in their projections, with the result that many activities don't meet the company's rate-of-return guidelines and are not approved.

With all the hype about "budgets", the truth is that most companies don't allocate money to network and IT activities based on some fixed program. There are some orderly modernization activities or expansions to capacity in a budget, to be sure, but the largest contribution to technology spending is from business projects that require technology support. In 2009, my research indicates that almost 60% of the technology funding will be tied to these projects, and that number will be roughly the same for the next three years. It's this money that is at risk if planners can't make the business case for the stuff they want.

This year, 39% of CIOs say that their primary goal is productivity enhancement, and my numbers say that will rise to 43% in 2009 and to 46% in 2010. It beats out "modernization" or "sales increases" or even "cost reduction" by an increasing margin. To put things in perspective, only 25% of enterprise CIOs said that productivity enhancement was their goal back in 2005. So that means that the current planning cycle is based on credible productivity enhancement. It also means that how credible your "enhancement" to productivity is in your own project proposal is likely to determine whether your projects run dry in funding a couple years down the line, given the current economic uncertainties.

How do you make productivity enhancement more credible? Fortunately the past history of recession periods offers some answers.

First, make conservative assumptions up front. CIOs tell me that when they go to senior management with what appears to be a conservative, sensible, set of projections their numbers are less likely to be challenged than if they start off with a more radical set of proposed benefits. CIOs also recommend that you start off a presentation with a credible statement of the problem or opportunity, propose a general solution strategy in conjunction with line executives to give the approach credibility, and then present how IT will enhance that strategy.

Second, put projects into the context of the overall cyclical trend toward SOA and mashups because that links the project to a long-term technology objective that is validated in the market and largely accepted by senior management. It also helps frame the project as part of a long-term strategy whose investments will have value for years to come. Mashups currently form the center of productivity strategies for over a third of CIOs and nothing else can match this. Look hard at having mashups as a part of your project.

Third, propose evolutionary behavior changes, and not revolutions. The worst budget planning cuts have come where CIOs have expected major shifts in worker behavior, because there is virtually no way to validate whether these kinds of radical shifts will be accepted or will bring about the expected results. This means that projects have to pay close attention to the transition phases and not just to the end game.

Finally, make every step a benefit. When economic conditions are uncertain, management doesn't like delayed gratification because there is a real risk that projects might have to be suspended for a period of time until conditions improve. If that suspension delays the benefit, it makes the project appear more risky.

The annual budget planning process is just beginning for most enterprises, and over 80% of CIOs I've surveyed tell me they expect the climate for new project approvals to be "much more difficult," where only 25% think the approval of budget for projects already under way will be that bad.