CIOs say IT investment success ‘uncertain’

15 Jul 2004

Chief information officers (CIOs) worldwide believe that despite recent success in reducing IT costs, success in delivering value from future IT investments is uncertain, a new survey by PA Consulting reveals.

The survey of 175 organisations worldwide, including eight based in Ireland, found that 64pc of CIOs agree strongly that their organisation produces clear business cases before embarking on any IT projects. However, confidence to manage risk around projects is low, with only 21pc strongly agreeing that they manage risk well.

Despite success in negotiating reduced rates with suppliers, getting value from new IT projects is less pronounced. Savings made in ‘pure’ IT projects are significantly lower than in renegotiation of contracts. 73pc reported savings from contract renegotiations but savings in legacy systems and best of breed packages dropped to 47pc and 28pc respectively.

Organisations are not distinguishing between commodity and specialist requirements. For infrastructure the favoured option is preferred supplier (44pc) but commoditisation of the market means that greater value for money could be sought. For business-specific applications most organisations (52pc) use invitation to tender even though 92pc of respondents agreed that ‘fit with specific business needs’ was ‘very important.’

Only 37pc of those who used reduced cost to measure value agreed that the perception of value from IT across the organisation was improving, of those using ROI that was 53pc, whereas of those using shareholder value it rose to 93pc.

“The majority of organisations who responded to the survey have reduced their IT expenditure over the past two years, with more than 90pc renegotiating contracts for IT services with their suppliers and 73pc achieving cost reductions. Others have aimed to reduce costs by setting up offshore arrangements, IT outsourcing, rationalisation of the IT infrastructure and reorganisation of the IT function,” said Colm Reilly of PA Consulting.

“However, success in cutting costs hides a major weakness in managing IT for long term value. Too many companies are obsessed with the numbers in financial projections rather than considering how the project will change the business and the way it works. Gaining value from IT in the future is likely to remain hit or miss, unless business cases are clear about where value will come from, how it will be realised, and who will be responsible for delivering it.”

The findings of the PA survey weren’t all negative. The perception of value delivered by IT has improved and organisations see IT as playing an important role in helping to achieve business goals. When asked how they thought the business as a whole perceived IT, a majority of respondents (85-90pc) said IT had improved in areas such as value for money, project delivery and overall service. Similarly, most respondents (80pc) reported that their organisations are supportive of initiatives to implement new uses of IT.

“There is no magic bullet for IT executives in the future,” Reilly added. “But failure to address the issues raised in our survey effectively means that organisations will continue to manage IT with a view to short term cost management.

“To get out of this cost trap, the IT function must live up to the confidence it now commands from the business and identify value beyond cost cutting. The most successful IT executives of the future will distinguish themselves by becoming both business and technical leaders.”

By John Kennedy