IT innovation contributes greatly to a company’s ability to grow, aside from the employees and external operations. Organizations tend to spend beyond their budget, especially when they are trying to maintain competitive advantage within their industry. However, if a company does not either cut the cost or balance the IT budget, the cost within that company are only going to increase. Many CIOs when considering an IT investment have “cutting the cost” at the top of the list. Budgets are being slashed between 40% and 50% by some companies to increase their ROI while growing the company.
It is interesting how companies have witnessed the failure of companies such as Hershey’s, and continue to make if not the same, very similar mistakes. Lack of financial analysis has contributed to the failure of cutting the budgets of IT projects. According to the chapter, the U.S. Department of Defense spent over $1 billion on IT through redundant IT systems. The overspending in this situation relates to the lack of effective planning and analysis of the current system.
As companies are realizing the need for reducing the IT budget, technological providers need to prepare for a decrease in revenue. Companies such as Verizon was able to cut the cost of server hardware, internal employees, external services, global sourcing, storage and their 2002 IT budget. The possible sufferings by technological providers are lower hardware sales, varied losses in all software categories, more competitive pricing for service providers and consultants, renegotiations with current customers and niche vendors grabbing the loose change.
The economic conditions is also affecting IT spending because the economy has been declining which gives uncertainty to purchasers of their possible returns on their investments. However research predicts that IT spending will increase by at least 5% once the economy improves. In my opinion I feel that IT spending will continue to decrease because as technology increases, the cost will continue to decrease. Even though companies have all the research, statistics, and information on the pros and cons of IT implementation, not every company will effectively use the information. Although companies can save up to 30% by cutting cost, it is predicted that they will only cut by 6%.
I agree with the author when he says, “Companies can continue their status quo spending or embrace a new way of doing IT.” It is up to the companies to decide which is more important taking on IT that hurts their companies or cutting cost and making the best of existing technology.
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4 comments:
I agree with your last paragraph. The overall health of the economy affects IT spending in numerous ways. Even though the trend of reduced IT spending has yet to completely begin, new trends take time to emerge. However, as risks to the economy increased substantially over the last few months, the poor performance of the economy is likely to expedite this trend in IT spending reduction. The financial market crises, booming oil prices, a weak housing market, and other external factors have an insignificant affect on business investment, but when combined, these factors take a toll on overall consumer confidence which does affect business investments such as IT.
Also, I agree with your opinion that spending will decrease as technology increases because as technology increases, competition often causes the costs to also decrease. In addition to overall technology increasing, I think the nature of the new technology is greatly adding to the spending reduction trend. In the past, the next big thing in technology has been innovations such as the Internet and Y2K which simultaneously cause greater IT investment. However, the next big thing in technology today includes open-source software and off-shoring which have an opposite effect of simultaneously causing less IT investment. While the new big things in the past require companies to spend millions, the next big things of today allow companies to save millions. I wonder how this will affect IT and technology vendors.
Obviously it is a good example, Google,that IT innovation contributed to a company's ability greatly in recent years. They spent a lot of budget to their IT projects to maintain competitive advantage within his industry. On the other hand, Yahoo focus on their budget for other fields and organizations. For me, I don't know which company they use their budget on the correct track. But until now Google still stands more advantage than Yahoo even if Yahoo is built in the same industry earlier.
Companies like Google and Yahoo are trying to use technology as an advantage, but I agree, I'm not sure which is earning the most benefit from the underlying technology. However, you're right Google as a company has maintained its position above yahoo.
Overall we will eventually have to evaluate the long term affects of all the cost cutting methods, open source sharing, and the internet on the economy as a whole. The health of the economy really is a concern that needs to be addressed as well as the future of the IT providers.
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