Monday, April 28, 2014
Budget increase mirage
In the beginning of the year CIO surveys depicted an upbeat mood with redefined priorities, business bouncing back, economic situation getting better and last but not the least IT budgets going up. This was the global optimistic view portrayed and shared by many CIOs that I spoke to also; and everyone wanted to break into a spring dance and celebrate the return of the good old days. Few CIOs enthused about significant increases in their budgets not betraying the fact that they had the benefit of a low base; 100% increase in budget sounds better !
Every organization big or small goes through an annual operating planning of budgeting revenue and expenses. All CXOs play the game with their promoters, headquarters, Board and whosoever is the negotiating and approving authority. Revenues are understated, expenses inflated and the commentary is all about how tough the environment is while we need to invest for the future. Projects get labeled strategic in their quest for approval; expenses become unavoidable, while market conditions constraint growth which is linked to past mediocre performance.
The situation predictably repeats itself annually like clockwork with an element of distrust on either side built out of past experiences. There is an air of wasteful irresponsible spending that needs parental control which needs to be exercised by the approvers. Chastising the minions, the numbers are adjusted amidst protests to reluctant acceptance. If the normalization has been prudent, life releases the brakes and moves the organization into top gear; when the negotiation is unrealistic, then starts the frustrating process of out of budget approvals.
So when I met a large number of CIOs on the unveiling of one such report, I tried to validate if budgets had really gone up; majority in the room had participated in the survey which brought exuberance to the sponsors and vendors in the room as the details unfolded. The dipstick brought in mixed results, the percentage was lower but there was indeed a group which had seen an increase in their budget. The quantum of increase was also a bit lower than illustrated in the report with a higher inclination towards variability.
Deeper analysis revealed increases factored in inflation apart from business expansion or higher levels of dependence on IT with newer technologies taking up a lions’ share. Business As Usual (BAU) spends is under pressure and requires rethinking; there is an expectation of lean thinking but willingness to spend for innovation and quantifiable business value. CIOs are engaging the rest of the company in prioritizing the allocation of funds and challenging status quo. The number of non-participative CIOs is dwindling and that is good news.
I did not hear much about the earlier big discussion on open source towards cost reduction; open source is now a viable alternative for some technology stacks. Expectations of free software reducing costs have withered away with experience of engaging teams to sustain such solutions which require a little more effort, specialized skills and lenient service level agreements. In specific segments the uptake was large and benefit quite visible. The push towards open source personal productivity tools has taken a back seat.
Everyone likes good news ! And budgets going up after a while is indeed good news for everyone. The moot question is how much of this will be discretionary to the CIO, or will the strings be pulled by the business ? The shift of project budgets to business has been gradual but consistent; the perception of lack of control has created many conversations fuelling the insecurity of some CIOs. Though rarely observed now, it is also a check on some not to run away with technology ignoring the best interests of business.
CIOs with strong business connect will continue to innovate and create enterprise value with whatever budgets get thrown at them as they have already aligned the business to what is required and in almost all cases they do end up getting what they wanted. CIOs with patronage of a board member may in the short-term get endorsement, but will be under pressure to deliver more than the first set which is business aligned. So if you have an increase, either way, live with the good fortune of funds availability until the mirage lasts.