Negotiations during lockdown

From my earlier post “The new abnormal”, one of the points that connected with the majority of IT leaders was “If not already initiated, renegotiate – licenses, maintenance contracts, and third party and outsourced manpower requirements”. Individually almost none could get the attention of their partners who were always there to discuss more licenses, services, or audits for difficult customers. Dropping all their inhibitions, personal rivalries, and competitive distancing, the CIOs organized themselves into a collective group to take on the big and small software and service providers. The mission of these groups, which represented a reasonable spend for the industry, to seek the true spirit of partnership in difficult times.

In the good old days the engagement with the IT fraternity was all about being partners in success, starting from engagements to identify use cases, define financial models for calculating returns, scale up and scale out, digitalization and digital transformation, month and quarter end license deals. When the going got tough for some of the software providers, they decided to scan through lists comprising existing customers who were growing, old customers who did not buy anything after the initial set of licenses, and those who were suspected of using unlicensed versions of COTS (Commercial-Off-The-Shelf) solutions. Not very amiable discussions these, some of them did hit pay dirt for the partners.

For everyone business has come to a grinding halt, the WFH addresses administrative tasks and virtual meetings; it does little for the broken supply chain or halted production. While a few online players continue to reap some benefit, their overall business activity is down to less than half (there are always a handful who can be called out as exceptions). With no revenue, the crying need is to find ways to manage the costs associated with IT. The CIO collective decided to partition themselves by vendor (not a partner anymore), to bring some weight behind their quest for relief. The ask was not unreasonable by any stretch:

1. Surrender unused or excess licenses that were taken for planned growth
2. Deferment of annual renewals of SaaS licenses and AMC due at the beginning of the financial year (April to March in India)
3. Reduction in service fees with reduced scope of work, or reduced load factor for IaaS, or network fees
4. Extension of timelines for pending payments and payment in instalments
5. Furlough contracted workforce until the situation starts coming back to normal

Thus started the long arduous journey; the group tweeted their angst tagging the vendors local and global leadership teams, sent emails which hundreds of CIOs forwarded for effect; reminders and follow up with reversed rigor – typically seen from vendor sales teams and management to close signing a deal. There was some hope among the group that they would be able to create some impact that everyone could benefit from. The list was quite impressive representing marquee names and many aspirants. Reversed reality if there was one, the turned tables evinced only couple of acknowledgements as if the rest went down a black hole.

So what transpired? Among the dozen odd vendors to whom the communication was sent, barely a couple decided to respond to the flood created by the CIOs. The rest had probably a dam large enough to prevent the water from carrying through to the management teams; don’t worry, we will take care of this – so I heard from a couple of account managers talking to their CEOs. It is also likely that they did receive the mails but ignored the content or intent behind the chain mails. The situation will not last forever and given enough time, the noise will die, only to be forgotten in the activity that would follow the return to the new abnormal. As for the respondents who respected the community of customers, there were the following threads which did not necessarily please the protagonist CIOs.

The first one acknowledged the communication by the group and reiterated the difficult times that have befallen everyone. Difficult times when new business has died away and existing receivables are tending towards bad debt with significant rise in days of outstanding. Difficult times that have necessitated the creation of additional investments in infrastructure or services for their customers to support WFH and related issues. Difficult times with the teams working longer hours to ensure that quality of service is not compromised. And in such difficult times the question of any reduction in prices or renegotiations does not arise whatsoever. With piling inventory and ceased production, we are equally concerned about the financial viability of our services.

Interestingly the second admonished the group for creating a rift in the relationships that have been built with so much effort, give and take, and nurtured with ample doses of support. Ups and downs should not be construed as an opportunity to question the foundations on which the partnership has been laid. There cannot be an overarching policy or decision that would apply to all relationships with a reduction or deferment of payables; it decapitates our business and our ability to provide continued support. We too have fixed costs which we need to service; renegotiations are a no-no, you already have the best of prices for what you buy and consume. Please talk to your respective relationship managers to review what we can do for you.

We are equally hit versus divide and break, both strategies fail to address the problem at hand for CIOs thus creating a permanent crack as everyone fights for survival. What will be the final outcome, we wait and watch.

Latest! A very large global IT vendor refused the premature surrender of partial licenses from a marquee customer stating that the licensing terms have no provision for early termination.

Last on the list (of IT budget priorities)

I got a call from a frantic CIO, someone I had not spoken to for long; he was upset and I could visualize his agitated state, not that he was prone to such behavior. Listening to him I realized that his situation was indeed worry worthy; so cutting short his outpouring we decided to meet the same evening to help him find a solution. The timing was interesting considering that just a few days back this was a subject of discussion with someone senior from the software industry and how it was putting some customers in a difficult situation.

Almost every enterprise uses some off-the-shelf application to run their business; it could be financial accounting, sales and distribution, ERP, SCM, CRM, BI, or plain and simple office automation tools like word processing, spreadsheets, and presentation. At the base level it also includes the operating system on their compute devices or database on servers. It is a rare case where everything is open source with no licensed software. Licensing norms vary by provider and can be simplistic per instance to complex revenue based.

If we go back in time to more than two decades back, equipment suppliers would freely provide these unscrupulously until software providers started tracking activation keys over the internet and made it difficult to deploy unlicensed software. Enterprise licenses for software were named or concurrent user based with IT being responsible to track use and buy licenses with growth in use. Server instances moved from CPU to core to Cloud and back to user base depending on which model maximized the revenue for the provider.

True-ups became the way to declare use and procure additional licenses for most with occasional audits to ascertain the gap if any. Licensors were willing to forgo minor aberrations in use if revenue continued to flow with increased numbers and annuity from maintenance contracts. Plateauing sales created an industry around rigorous audits by third party to aggressively seek non-compliant customers and corner them to sell at rack rates versus standard volume or relationship based discounts resulting in higher revenue but broken relationships.

Every 2-3 years, whenever there was a threat of legal action, they had bought limited licenses of the software which had now become business critical. He knew the company was living on the edge and could be in trouble should an audit be initiated. The management had tasked the CIO to “manage” the shortfall not willing to spend or allot budget to regularize the licenses. It is not that they could not afford to pay; the mindset was to keep it that way until a confrontation was unavoidable, so the gap just kept growing.

The CEO had called the CIO and handed him a letter instructing him to find a way out; it was a legal notice from the licensor to conduct an audit of all computing equipment across all premises and data centre, including subsidiaries. The CIOs protests and reflection of reality did not appear to make a difference to the CEO. The CIO illustrated similar incidents with much larger enterprises who had not been able to “manage” this situation. Unable to make headway he decided to seek counsel from friends and peers from the industry.

Listening to him, a clear case of wilful non-compliance, we realized it would be a difficult task for him to face the audit which his CEO also did not want; at the same time the vendor was unlikely to back out. His allies within the company were shy to stand up to the CEO; collectively his peers advocated that he take help from the legal function to delay the action on the ground while he talk to the vendor to negotiate a deal. The licensor was known to be amenable to a settlement and that appeared to be the best option.

Licensing complexity indeed puts CIOs and Purchase functions in a bind which has cropped up a new industry around Software Asset Management. That does not obviate the need to actively manage budgets for increasing licensing requirements of a growing business. I believe that it is upto the CIO to keep the business informed of license compliance at all times including new business planning, monthly review meetings, budgeting exercises, and finally in their own dashboards. Don’t wait for a calamity to start the discussion.

Finally, if IT budget is the only place where this is going to be discussed, it will always settle at the bottom of the priority list !

How much more with less ?

Over the years economic cycles have turned all conventional wisdom upside down; the new normal that became reality before the turn of the decade squeezed all the unnecessary costs out of every line item in IT budgets. Do more with less being the mantra, CIOs scrutinized operations and optimized them ruthlessly. Half a decade later and half way through the year, one of the resurgent themes with many CIOs is conservation of funds; revenue growth has been under pressure for some time, bringing costs back into focus.

In an informal gathering of CIOs this was the predominant theme with everyone attempting to figure out where do they get additional savings from ! Hardware refresh had eliminated maintenance costs for a few years, but now maintenance and support contracts are up for discussion for all the critical and non-critical hardware. Users now expect desk side support for all types of incidents and problems; with rising manpower costs, hardware service vendors and maintenance providers are demanding inflation linked increases.

Last time around there was a flurry of activity around license management; are people really using their allotted licenses ? Thus software license costs were pruned down to the bare minimum required; number of users has gone up now and there is a need to buy additional licenses. Vendors pushed usage audits and attempted to enforce compliance to license agreements putting the CIO in a precarious situation; no one wanted to be non-compliant. Open source again became a discussion with limited success for some.

Back then again contracts for running legacy and custom applications, and maintaining business as usual were trimmed; wherever possible the activity moved to internal resources. Onsite activities were offshored to the service provider’s premises; back office functions relegated to low cost locations in the suburbs. Contracts were examined afresh and brought down to a bare minimum. A few also took the tough step of letting some of their team mates go and reallocated portfolios stretching the remaining team. FUD ruled for a while.

So where do we look for new savings opportunities ? How much more can we do with less lamented the group ? The group had no bright ideas, nor any best practices to share. One of the CIOs present gathered sympathy for a 25% cut imposed on her capital investments as well as operating expenses and still expected to run projects as well as keep the lights on with no adverse business impact. Someone suggested that she conduct an open dialogue with her boss and ask him for ideas on how to implement the cut.

Systematically the group explored some of the options that vendors pitch in as cost savings measures. Is the Cloud with pay-per-use models a viable option ? Variability has been one of the promises from the cloud; but then the proponents of this model cautioned against if cost savings was the primary objective. If you moved existing loads to the Cloud, what would you do with the existing hardware ? It would anyway make sense only if there was a need to increase compute capacity or hardware refresh was imminent.

Can and should total or strategic outsourcing be explored ? That is when most vendors promise 20+ percent savings and projections are locked down for a number of years ! Transfer the accountability and let the vendor figure out how. A couple of CIOs who had been there done that cautioned against it. They have had a harrowing time making some of the numbers in the spreadsheets stick in real life. Legal teams poured over contracts to find a way to make it stick; the CIOs ended up in getting the stick instead.

Most organizations which are driven by ratios and numbers resort to cost cutting rather than cost management in their attempt to keep the street happy. They want to look better than their competitors and keep the stock price high sometimes even at the price of damaging the DNA of the company. Consultants get hired to find hidden costs while they get paid visible money with diminishing returns. I believe that enterprises driven by customers don’t resort to cycles of cost containment and thrive in adversity.

A lone voice in the room asked, “Can we look at increasing revenue instead ?”

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.

The Matrix

Not too long ago there was a CIO who was involved in a cultural clash upwards and sideways in a matrix organization. He supported multiple diverse business units across multiple geographies; the business units had CIOs reporting into the respective CEOs, they had limited accountability to the CIO. The CIO reported to the Group CFO locally and the regional CIO functionally; the corporate IT function under the leadership of the CIO supported all the business units across the geographies.

The CIO had taken over a team of submissive staff who never challenged the business CIO demands for fear of conflict. While the overall matrix was a bit complex with differing size and profitability of business entities, the equilibrium was largely maintained with some give and take between the business units and corporate functions. Chargeback was based on revenue as well as headcount; there was occasional rumbling and murmuring which was subdued before it could raise an ugly head.

So when the CIO met the business units CXOs he was surprised at their aggression and attitudes; it was justified that the business team will generate the demand and the corporate will take care of the supply. Corporate IT was expected to take orders based on what the business had decided as the direction and strategy to deliver the systems and technology. It would have worked well except that the timelines were rarely reasonable even when Corporate IT tried very hard.

Corporate IT was also responsible for BAU systems, the data centre, applications and networking. The divide reached morbid peaks during budget discussions; your cost is too high, business cannot afford to pay increases every year; find efficiency was the mandate. Scraping the bottom did not reveal much and that was unacceptable to the business. If business is not growing, how can the expense grow ? Fair point as any was, with business seeing a downturn, it is imperative to cut cost.

The difference was that the business IT budgets grew while the cut was imposed on CIT budgets. This led to frustration and thus the CIO sought arbitration from his boss the Group CFO. That is when things started going out of hand; Business CIOs along with their CEOs represented that we are a Profit Centre while you are a Cost Centre; we pay for your existence and thus have the right to determine how you work while you cannot challenge how we allocate resources. Ouch !

Determined not to lose his temper the CIO silently looked at the CFO who gravely looked at his phone avoiding eye contact. With no help available, the CIO took the challenge head-on and suggested open book costing to get constructive feedback on what can be optimized. This was rejected upfront that it was not for business to run operational systems. Smiling the CIO offered a handover of all BAU systems to respective business units to run and transfer resources too.

Taken aback the group looked at each other; the CFO rose from his slumber to pacify and resolve; he suggested that the groups step down from their positions and create a working model that does not create conflict. The open book model was agreed to with benchmarks with the external world. This was deemed an acceptable compromise. His words on being a team and the need to work in harmony appeared hollow to everyone, which he too realized.

This is not a normal scenario in every matrix organization but some parts play out in every company. It is difficult to align direction when measurement criteria are disjointed. The open acknowledgement of team work towards success ensures that producers and consumers do not see each other that way; rather they work to create an ecosystem that motivates progress. Having been part of a few matrix structures, I believe that finally the culture of the company (read CEO/Head) will determine success.

If you have been a part of a matrix and have stories to share, I would love to hear them.

Budget Begging Bowl

Year after year enterprises engage in an exercise that is like a well-orchestrated dance of corporate executives, each playing their best role and they have to collectively also look good to the audience. Interestingly the audience is the executives themselves, the Orchestra Master (CEO) and Board of Directors who asks for changes to the story line or approves the end result. At a broader level successful execution played to the stock market and analysts acknowledges work well done.

Like in an orchestra an ill tuned instrument can strike a discordant note, the collective sum of efforts needs complete alignment for an enterprise to work at as close as possible to its optimal level. This applies to the planning process as much as to the execution. Undercurrents during the planning process if ignored will come back to haunt the team during execution. All this is common sense, nothing new here, but we still continue to self-impose challenges and then find complicated solutions.

Every year give or take a few weeks this is the time when for most companies budgets are approved for the next year. The process begins many months earlier and after multiple rounds of discussions and negotiations, the final budget is presented by either the entire management team or select few (read CEO, CFO and maybe the CMO) to the Board. As boards have to “add value” they challenge the collective wisdom and either inflate the top-line or bottom-line or both or cut costs leaving the team perplexed or so it seems.

We all learn the game fast and keep buffers in the budgets for such eventualities. We offer the token protest and accept the fait accompli moving on with life. It is funny that this repeats itself in every department, company and everyone goes through the charade almost unthinkingly. The process leading into the D-day and thereafter is notable. But there are many who are challenged; let me reveal a few scenarios based on some direct, incidental and anecdotal data.

Budget planning is typically a function of planned capital investments and operating expenses. Most companies are CAPEX unfriendly and there is always pressure to reduce operating expense. For the CIO the two edged sword draws blood by moving hardware and licensing to operating expense and then the CFO wants to cut OPEX. Finance and/or business friendly CIOs know how to manage this, others struggle to keep their head above water until one of the powerful CXOs throws them a lifeline.

Post “rationalization” by the Board, the situation gets even more interesting. Now that everyone has been given a say 15% operating budget cut, the un-buffered and bewildered CIO struggles to stay afloat. A frustrated CIO once commented, where do I cut without impacting service levels ? I cannot go short on licenses, nor on bandwidth, and service providers want inflationary increase, AMC needs to be paid, travel and training are already down; do I go to the CEO, or CFO, or better the Board with a begging bowl ?

In jest or otherwise the remark portrays the helplessness felt by many and not just the CIO. Is there a way out ? There is if everyone went back to basics and stopped predicting the future based on the past and making unrealistic projections on what the business will be next year. It would help if all functions worked the budget together acknowledging dependencies for success rather than in silos. It is then up to the CEO to play the galleries or stand firm ground with the Board when s/he represents the team’s collective effort.

Where would you draw a line as the CIO/CEO ? Will you accept the cuts ? How will you ensure that realistically the company has enough cushion to react to market and competitive moves or the black swans that seem to be common now ? Will you put your neck out for the team ? I have always gone into a meeting with the maxim that budget is an intent to spend; we collectively determine the spend and own it up irrespective of which head or bucket it sits in. There are limits to cutting cost, let’s focus on the customer and how we can increase revenue. That is a better discussion !

Business ready to invest

I liked the rhyme in the words as I read the headline; it is poetic in a way that in contrast many research companies are telling us CIOs that one of your top 5 priorities is to save cost. I still cannot figure out who collates the results and what kind of solutions they use to determine the results, there has always been an outlier that no one agrees with; this includes many who participated in the survey. So when I saw the news about business wanting to spend on IT, it was like an oasis and the heart wished it was real and not a mirage. After all many businesses I know have been investing extensively.

Over the years we have been hearing the maxim, “Do more with less”, almost to the extent that it has become “the normal”. I cannot remember a year when the CEO and/or CFO did not repeat the phrase chiding the proposed budget for being irresponsible. The banter is part of the negotiation between the CIO and the custodians of profitability. The underlying assumption was and now in some cases still is that CIOs are far removed from reality and they leave stuff like profitability and ratios to other CXOs.

Reading through the lines it was evident that the data points that went into the writers’ hypothesis were of strong foundation. She had industry slices and geographical splits with numbers that were plausible. Interviews with stakeholders validated her statistical inferences citing willingness to invest in IT solutions that provide market advantage or capability needed for growth or to stay where they were. Melodious music to ears with slowly creeping nagging cynicism; if it is too good to be true, then probably …

So I dug deeper, followed the links, unearthing the evidence that has continued to elude respectable research companies professing the contrary, save or die. Having got conditioned to a message, it was hard to believe that there someone has been brave to talk about reality the way it is. The sample size more than adequate to withstand scrutiny, the data irrefutable; some may wonder if she connect with CIOs and CEOs from another planet ?

The conclusion was associated with a reasonable set, there were many who still lived in the old world of cost. Progression of CEOs showed IT investment trend line going north. The winners subset depicted converging thoughts between CEO, CFO and CIO, the bulging middle some alignment, and the laggards a big divide. The number of believers in IT is growing and they are happy to talk about their success. The author had decided to focus on good news with a positive bias that was growing than the statistically larger group which is shrinking, albeit slowly. Hallelujah !

We all live under the same sky but have different horizons. Over the last decade and more across industries surviving a rollercoaster economy, many CIOs have been able to create a perceptible shift in thinking wherever they go. These are the business savvy, technology aware, articulate and confident set of CIOs who bring success like the Midas touch (if you prefer a more contemporary analogy, I would compare them to X-Men). The tribe of these outliers is increasing; shortly they will be the majority and it is evident they will shape the future.

Are you a part of this assertive movement ? Come join the joyride !

Proactively Resistive

Uncertainty is certain, that is the maxim of today and reality for all of us individually as well as for enterprises. A repeat of the economic downturn of a few years back or worse, that is the question everyone is pondering over. When the sentiment is down, the first casualty is perceived risky innovative propositions. People withdraw into their anxieties and work to keep status quo. Any remotely disruptive thought is beaten black and blue unless inaction threatens existence.

So what does it do to the IT budget and the CIO who is being challenged to do more with less and find resources to create efficiency ? How can operating expense be lowered when a large chunk of the allocation is to paying license fees and annual charges for the large systems ? Cloud may shift some capital expense but does not take away the payout for license and support. Can the business critical solutions be shifted to open source ?

Even if the shift to open source was possible for some processes, the core ERP systems are the ones that will be resisted by the users; be it HR or Finance, they do not want to shift away from already stable (take that with loads of salt considering the patches that continue to make the system unstable) and comfortable systems. The big vendors know that such a shift is almost impossible and continue to hammer the proverbial nails into corporates with increases year on year. So what is the way out for the CIO ?

In a CIO forum I met one of the thought leaders who has and would make it to every list globally. He ran a discourse on change that IT brings about in an enterprise. He talked about some of the change projects being executed by many global enterprises pertained to reducing expenses across the board led by IT. Mandated or democratically agreed to, these were being resisted by layers across the enterprise. He preached top-down and bottom-up collaboration to “sell” the ideas along with existentialist discussions. If we did not do this, then the sky would fall upon us.

It was nothing new as CIOs use this strategy quite well to garner buy-in for most projects. It is another matter that measurement of the impact is rarely done a few years later as the business context has changed, or we have moved to another crisis, or the people who made the case no longer exist in the company. Push ahead and ye shall be rewarded he expounded. Maybe I have become a cynic after trying this so many times to believe that it would still work in the current business environment.

I believe that irrespective of support levels across the enterprise, the CIO should continue to engage with the stakeholders to have them share the pain before embarking on the journey to create colossal change or transformation of the IT landscape. Finding business allies will be difficult, but the journey in solitude is a sure way to achieve martyrdom. After all we all live under the same sun but have different horizons. So lead the way, but make sure that there are others along with you, not following you.

The words that stayed with me a long time were “the cultural response was resistive, sometimes proactively resistive”. Hasn’t the world always been the same for the CIO ?

The Power-centric CIO

My marketing team is wresting part of my budget of customer facing applications and social media; at the same time funding for the new budgeting application is with my finance team. The IT budget is now almost 50% of what it was last year. How do I recover back control of my budget ? Wailed a CIO in a panel discussion, which was discussing amongst other things trends that are likely to be reality in the upcoming year.

The panel sympathized with the protagonist CIO and a few from the audience attempted to offer solutions. The debate threw up a interesting thoughts on how the budgetary control could be retained with IT. Ranging from bureaucratic rigmaroles to bullying and many other similarly trending behaviors, the suggestions were analyzed and discarded as untenable for either being against core values or not implementable without inflicting self-damage.

The IT budget has been a discussion point for some time now. It predicted the investments made by companies on technology enabled solutions. The industry created benchmarks around the investments linking it to the topline graded by industry. The maturity of IT usage was linked to this figure and anyone spending below the benchmark was seen as a laggard or highly efficient.

Then came research reports on innovation versus business as usual; ranging from 70% - 90% of the IT budget being consumed on keeping the lights on, while the remaining pittance being allotted to new projects or innovation. Anyone with BAU numbers under 60% was envied and deemed better aligned to the business. Models were created to turn the ratio upside down and reduce the operational budgets to strategic initiatives.

Economic cycles threatened available monies and CIOs were put under the scanner on every penny (or cent or whatever currency you like) they spent. Do more with less was the mantra and that is now the new normal. Every disruptive technology was seen as the next silver bullet to help the CIO in improving the dialogue on keeping the IT budget to a respectable ratio to the revenue. Cloud will save money, move everything to Operating Expense; virtualization will save the enterprise IT …

In one of the companies I worked the IT organization was empowered with the operating expense budget and incremental innovation on existing technology stacks. There was a discretionary budget for exploration of new trends and technology. New projects and initiative budgets were discussed with the business and IT advised the funding requirements which rested in the business P&L. This ensured that the accountability for the projects was an equal responsibility shared between IT and the function. The success rate was high and everyone loved IT. Since then I have followed this practice successfully in every company.

I believe that keeping the number in the CIO spreadsheet or the business spreadsheet does not take away the control from either. Mature enterprises and CXOs work together to solve real business problems and not bicker over where the budget lies. When was it about control or the power of the budget, large or small ? If the CIO is partnering with other CXOs and is focused on the corporate agenda, then it is about getting things done irrespective of where the number lies.

Does this insecurity befit the CIO ?

The list price conundrum

With the economy tightening again and uncertainty across geographies, enterprise spending is once again under focus; this is giving rise to some interesting discussions. Driven by the CFO, CEO, and CIO who are exploring deferred investments or the usual doing more with less, the discussions translate into unrealistic (as griped by vendors) expectations from suppliers, vendors and partners to provide goods and services at higher discounts.

Result is rounds of moaning and groaning from either side citing their versions of reality and pushing the limit beyond the last transaction. The promise of future and making up the deficit in the long term does bend most; few who do not oblige sometimes are rewarded and more often it is an opportunity lost. The resultant business creates suspicion if earlier everyone was enjoying higher margins than they should.

In the IT world, I never heard of anyone paying list price on anything that they bought. In normal times discount levels used to range from the nominal 10% to in many cases as high as 70%. It was a rare one time transaction that enjoyed higher numbers. The list price was a marker to decide whose need was higher and who had more patience. Month end, quarter end and year ends provide opportunities offering higher levels of business and discounts. Again almost everyone recognizes this and plays the game.

In the last slowdown or recession depending on which part of the world or which industry you belonged to, a few companies breached 90%. There are anecdotes about free solutions being provided to a few marquee customers either as an entry price or to sustain business. Free is a paradigm shift though the way some vendors are hiking their annual maintenance charges, free does not seem too unreasonable considering that in 3-5 years you have paid as much as the initial acquisition cost.

So why do vendors continue to print a list price which has irrational numbers and then offer a discount ? Maybe to acquiesce human nature which revels on a deal ? Purchase managers and CIOs work on reducing prices every year. Volume typically adds to the discount but is not the only determinant. Benchmarking across the geographies I find that the level of discount rises from west to the east and then again slides with India and China being the trough. Despite this trend, I haven’t seen a gold rush to shift license contracts from other countries to take advantage.

The current uncertainty has once again brought budgets into focus. Slowdown in customer spending is already impacting retail consumption and thereby every industry. Going into budget sessions, the expectation is to once again lower expenses and investments. We still have inflationary trends is many countries and wages are going up for some, while cost of living continues to go up. But the question that haunts me is if there is indeed so much of buffer that every time the challenge is thrown, people find a way of adjusting to new baselines, then how did the same people allow higher expenses in easier times?

As goes the proverb, “Mother is the necessity of invention”, I believe that with every challenge new opportunities are explored and leveraged on operational efficiency. Technology evolution with new disruptions contributes to improvements; return ratios are however reducing and we are reaching a point where the stretch will reach a break point. We will achieve the pit bottoms sooner than later; the list price will then have to change. Whether it will go up or down is another debate.

Get on with IT

The other day I was in a gathering of CIOs being addressed by an eminent editor of an IT publication who was unraveling research conducted by his publication. The research surveyed a large number of CIOs who provided their priorities, challenges, opportunities for the year ahead and some numbers (budgets, compensation, and longevity in a role). Based on their frame of reference the audience agreed and disagreed with the data points. This was followed by a discussion on some of the inferences and the qualitative feedback. Then all hell broke loose.

The discussion like always touched upon some favorites like Business IT Alignment, measurement of effectiveness of leaders and the most debated one, TCO/ROI. Everyone had an opinion on everything and rarely did opinions converge. Some felt that BITA is a non-issue while others still struggle with it; it was opined that the CIO by virtue of taking on additional business responsibilities and participation in business discussions has already demonstrated leadership, and TCO/ROI matter to almost everyone except when under the guise of “strategic projects” the issue is sidelined.

The role of the CIO and its evolution from technology to business was justified with the fact that technology evolution and usage patterns within the enterprise have driven newer expectations and thereby the change encountered by the CIO. Alignment need, lack or existence was challenged and treated IT on par with Finance and HR or Marketing. Contextually depending on the incumbent CIO and the industry, these are real trends.

Who justifies ROI and who should be tasked with the calculations ? Is Post Implementation Review still in vogue ? No one had done any and neither did any enterprise go back to review the expectations with the reality. Those who did create business cases with ROI agreed that ROI is now passé. Interestingly a few promulgated that they use the cost of not doing a project and losing on growth, customers or position in the industry. The learning from the discussions could be summed up as follows:

1. BITA is largely dead; it is not about alignment anymore but about working together and solving real business problems. Gap if any is perceptions that vendors and consultants want to fuel.
2. In the same spirit ROI or any financial metrics is co-created by the CIO along with the function or business impacted. The justifications focus on incremental revenue or cost savings and are shared between the CIO and the business head
3. Projects are also being sanctioned with strategic intent focusing on not just the new capability and its impact, but also on the potential disadvantage faced when the capability is missing
4. The discussion around the table is no longer on the technology, but the impact and outcomes which have to be enumerated using the positive or adverse impact to customers and employees
5. There will be enterprises that get it and some who don’t. CIOs will jump ship where they remain challenged for too long.

I wonder what is the need to continue berating the role in which we are, the CIO ? Can we stop talking about it and get on with IT ? Are we creating self-fulfilling prophecies propounding the need for alignment, or the evolution of the CIO role, or at the basic level pondering on how to justify budgets ?

 

Metrics that matter

I bumped into an angel investor in a social gathering organized by a company funded by him. Discussing a range of subjects, he was interested in understanding how customers of his funded company used technology and traction with the Management across different sectors. Acknowledging the fact that all his invested companies used IT as a competitive differentiator, he queried the metrics used by CIOs in India. In the discussion group were CIOs from Banking, Insurance, Manufacturing and Retail.

Starting with IT budgets, the range observed was 1.5% upwards all the way to over 10% for a Bank. I am referring to percentage of revenue, one of the metrics everyone uses and is portrayed as a reflection of the seriousness of IT investments globally. Angelically he disagreed with this norm as Capital and Operating budgets should not be clubbed into one IT budget. Echoing the thought a few CIOs stated that they separated the capital investments moving them to the business units since new initiatives have to be what business needs and wants.

Investors have a way of getting their viewpoints; he asked if separating the capital investment and operating expenses helped. The answer to that was a vehement yes. The CIO actively controls how the existing IT setup is managed and thereby can optimize capacity and support. Investments are always linked to new business initiatives and outcomes. A great system or the best technology does not create a recipe for success if business fails to utilize it effectively. When the investment impacts P&L of the business, the ownership and contribution equals the effort put in by the business and IT.

The discussion veered to CIO dashboards and what were CIOs monitoring daily, weekly or monthly. The responses varied from health of systems to active budget tracking and key projects that IT was involved in. Only two mentioned that there dashboard was no different from the other CXO dashboards but included a few IT metrics too. Considering that the CIO is in most cases an equal partner in the business, why should the dashboard be different ?

Active projects with large investments require monitoring and communication to provide visibility across the enterprise. Success is measured not just by on budget or timeline, but effective use and business value that may have been spelt prior to the project. Like the CMO would monitor marketing campaign effectiveness or the CFO tracks treasury, the CIO has his/her business IT projects.

Lastly the IT Strategy and long-term plan tracking is the most critical one. As the owner, the CIO must track and report periodically progress made, issues and challenges, new opportunities and finally business impact delivered. It is a living plan and not something to be created, approved and locked up. What gets measured normally gets done.

The investor benevolently nodded to the maturity of the CIOs and their success in managing perceptions and that they get it.

Squeezing the last drop

One of my CIO friends narrated an interesting anecdote about his meeting with a CEO of a mid-sized IT services company. They were talking about the extension of a contract that had run through 3 successful years. The CEO was relatively new to the company and not party to the original contract. He was berating the fact that they were losing money on the current deal and needed to turn around the business and the fact that the global HQ was fast losing patience.

The contract was signed in times when growth was good and business expectations were stratospheric across industries. The then CEO was exploring local expansion as well as captive services for global operations that would have given Indian entity a firm standing. The downturn took everything away including the CEO. Business growth did not revert despite the economy stabilizing. The pressure to turn around the business thus became paramount for this IT Company.

As the negotiations stretched over a few days, the CEO began demonstrating discomfort. In an open book costing he was justified in his pricing but unable to acknowledge that the company had built up higher running cost which could do with pruning. As the customer, my CIO friend was unwilling to pay a substantial increase to accommodate. The choice to the vendor was to cut costs in a hurry and acquire new customers, and to the CIO it was about continuity or moving to another vendor.

Companies set up specialist functions to negotiate deals, sometimes within Finance and at times as an independent charge or within the function equipped with experts who justify their existence with great sounding deals. Some of these may be win-win, but many end up with bickering over legal contract terms or lose-lose unless you are an 800 pound gorilla who nobody can ignore. So how does one define the limit for negotiation ? How do we know that the deal is great for both of us and not a win-lose or lose-win ?

Conventional way is to negotiate hard, drive a bargain that is best value for the customer. It does not matter if the supplier makes money or not; they can always recoup their margin in the next deal or with other customers. This belief has survived and done well for many. Suppliers recognize it and so do customers who play the game. The industry has adjusted prices accordingly so that nothing sells for full price anymore. Everything has percentage off going all the way to 90%. Can we get it free ?

There is a need to change some of these paradigms to bring the dance of the discount to a stop or at least reduce it to realistic levels may be linked to volume of business. CIOs too need to set fair expectations internally and externally to create win-win scenarios and work upon long-term relationship building. Rarely any deal now is tactical. It is also important to remember that people churn across companies. The spurned, scorned or bitter salesperson may turn up a few years later in another company which is critical to your business operations.

People buy from people, so don’t squeeze the lemon too hard, you may end up with a bitter taste.

P.S. my CIO friend concluded the contract with the vendor who did reduce his overhead costs.

Buying IT, a financial decision ?

IT procurement has always been an activity that provides the CIO and IT staff with substantial power —that of a customer who defines the requirement, negotiates, and sweats the poor sales person through each interaction. There are horror stories of negotiations beginning post midnight, as well as of joyous ones with a handshake happening across the table in less than an hour. In a few cases, this negotiation is the role of a specialist IT buyer or purchase department.

The recent past has seen a lot of rigor in this process, with expectations of better deals and discounts driven by tightening budgets. In many cases, Finance teams were thrust upon the CIO to validate or take over the negotiation. The underlying assumption is that Finance has better negotiation skills, and they will fiscally protect the enterprise’s interests. It is another matter that these individuals (with best of interest) had little knowledge of the overall value propositions on the IT solutions. Another angle discussed is of governance, elimination of temptation driven by large value transactions, and keeping everything above board.

In the early days of my career, one of the executives charged irregularities in IT purchases. I welcomed the conducted audit, which validated the IT departments’ innocence and above board dealings. This set into motion a change in process with the induction of another coworker from Finance during the buying process. While she was in the initial stages an observer more than a contributor, over a period of time, she was able to start adding value. The cast aspersions were no longer a talking point, but collaboration was considering the perceived transparency that it brought to the process.

There have been not so pleasant experiences too for some CIOs facing “interference” from other functions, as they do not understand (nor make an effort to). Thus the strained relationships between IT, vendors, and largely the finance/purchase team leads to a lose-lose proposition for the enterprise—with delays, inefficient negotiations, and missing line items in the overall project charter or Bill of Material. Everyone finds this an ordeal, but is unable to change the outcome, as the value propositions are not understood.

If your organization is functioning well without involvement from other functions in IT procurement, periodically review the perception of how you are seen doing that same. It would help you address issues before they become a talking point. On the other hand, if your organization does require purchase decisions to involve a larger group, get them into the discussion from day 1. Else you may face frustrating moments in the future. Their involvement and participation will be a function of whether they are measured on this. Make sure that KRAs are aligned; else they have no reason to devote time beyond what makes them win and look good.

I also had the privilege in a company to have senior finance personnel sit through tech vendor presentations nodding knowledgeably for a while. Then they would start making excuses not to participate, or get off the meeting as some important call took them away. After a few months, they rarely turned up !

Holy Grail of IT, Operating Expense vs Capital Investment

IT budgets were never a great discussion; the CIO struggled to find the right balance between “Business As Usual”, or keeping the lights on, IT infrastructure, incremental innovation, new projects that business wanted, initiatives that IT wanted, and some that the CIO believed will have a transformational impact on the company. Over a period of time, the operating expense ran out of control to reach almost 90% of the total. Across the industry, this required a conscious effort to bring back the innovation budgets with BAU settling around 70%.

In the recent past (at least the last two years that is vivid in my memory), almost every IT solution, vendor, consultant, and CIO has promoted the idea of shifting capital investment to operating expense. Capital investments almost withered away, as the economic challenges dictated cash flow controls. Large initiatives found it difficult to get initial funding. IT companies turned around models to offer almost everything as a service, thus obviating the need for capital expenses. New business models liked payments to outcomes spread over a period.

The operating expense model helped forward movement; in success based engagements, everyone was a winner. For the CFO or the CIO, in the absence of success, it was easy to pull the plug, and stop loss. Yes, there was, and is, an inherent risk of the project or initiative not working, but we have not heard of any such anecdotes as yet — as if success rates now equaled the past’s failure rates. Is this due to the fact that the financial risk is now shared in a different proportion between the stakeholders? Or is there another angle to it?

The answer is probably affirmative when it comes to the shared financial risk. However, I also believe that the vendors now prefer the OPEX model, as it helps their profitability over the long term with continued revenues and the ability to spread their capital investments over a set of customers. The customer is probably paying more over the useful life of the product.

There is another angle as well. Once any process operates over a shared IT infrastructure, application, or solution, with the data too being stored in the service providers premises (sounds like the Cloud?), the ability to get out of such an arrangement into an independent model will be a huge, if not insurmountable, challenge. Everyone recognizes it, and believes that the changeover is executable, but I would be worried to be in a situation where I could be held to ransom — despite what the lawyers tell me.

I am not propagating the message that we all need to move back to the good/bad old days of big capital expenses. The CIO should be wary of the “too good to be true” deals, and safeguard the enterprise’s interests by reviewing alternatives to disruption of services, or the possibility of a shift should the service levels fall below acceptable limits; and in the worst case scenario, the service provider increasing the fee to abnormal levels. The time and cost of any change in this situation can be very high indeed.

Justifying IT budgets and the bicycle stand syndrome

A long time back during a budget meeting, one of my CEOs narrated a story (or maybe a fable) on Boardroom discussions on budgets. This story has stayed with me for a long time, and the memory was refreshed last week in a discussion with some industry leaders. Here’s the story:

In the Board meeting of a large and successful company with multiple manufacturing plants, two agenda items were tabled; first to discuss $400 million investment in a new manufacturing facility, and the second the layout including employee amenities of the same manufacturing plant. The second agenda item was unusual for the board to discuss, but found its way into the chambers since the Employee Satisfaction Index at one of the older plants was low. The financial proposal was tabled by the Head of Manufacturing, with added guidance from the CFO. The resolution was passed unanimously, and done with, in about half an hour.

However, the discussion on amenities took almost two hours — with the longest time spent on the location, structure and type of the bicycle stand. Everyone had an opinion, and disagreements continued until the Chairman of the Board decided to put the debate at rest by appointing a committee headed by the HR Head to review other plants (including those of competitors) and table the recommendations in the next meeting.

Last week, the meeting with fellow CIOs and a few marketing heads veered towards budgeting and ROI. Snide remarks aside, the debate on how these distinct functions justify their million dollar proposals took an interesting turn. When the CIO presents a business case for an enterprise wide system that potentially benefits everyone but requires significant participation and change, it takes immense effort and documentation in order to get everyone to listen, review and agree. Multiple iterations are the norm, and a chain of signatures essential before the grant of even a tentative approval. Whereas, the CMO sails through in a jiffy citing brand building, customer touch and impact on sales, even when most of them are not necessarily attributable to the discussed campaign or idea.

Why is it so difficult for CIOs to get funding for new projects as compared to, say CMOs? The difference is, I would guess in many parts. To begin with, the language in which these proposals are put across. Another is the change that IT purports to create in a change-averse world. It could also be that marketing as a function always focuses on the end customer, while IT initiatives are predominantly inward focused (though that is changing fast now). The conversation initiated by CIOs when they connect to stakeholders and customers does find traction. So maybe peer learning has to be gained on how to pitch right the first time, every time, and win when every function is competing for the same precious resources.

Scott Adams (of Dilbert fame) in his unique manner put across the marketing formula, “It’s just liquor and guessing”. I have yet to find a good enough one on IT budgeting.

IT Chargeback, gain or pain ?

Every so often, the subject of chargeback raises its head, and challenges (un)conventional wisdom. In the recent past, it has been in the news as a critical requirement for deployment of cloud computing. Many reports have been written on why IT chargeback makes sense—especially in a diversified enterprise, with multiple business units using IT services provided by a corporate function. Almost everyone uses the rationale that chargeback helps IT allocate fair (?) cost to consumers of these services, and thus possibly provides the budgeting framework for KTLO (Keeping the Lights On) or BAU (Business As Usual).

I looked up IT chargeback on Wikipedia, and found the paragraph below as the closest definition:

“IT Cost Transparency is a new category of IT Management software and systems and that enables Enterprise IT organizations to model and track the total cost to deliver and maintain the IT Services they provide to the business. It is increasingly a task of Management accounting. IT Cost Transparency solutions integrate financial information such as labor, software licensing costs, hardware acquisition and depreciation, data center facilities charges, from general ledger systems and combines that with operational data from ticketing, monitoring, asset management, and project portfolio management systems to provide a single, integrated view of IT costs by service, department, GL line item and project. In addition to tracking cost elements, IT Cost Transparency tracks utilization, usage and operational performance metrics in order to provide a measure of value or ROI. Costs, budgets, performance metrics and changes to data points are tracked over time to highlight trends and the impact of changes to underlying cost drivers in order to help managers address the key drivers in escalating IT costs and improve planning.”

A mouthful indeed! Now, I agree that IT cost transparency matters, but chargeback? Having been part of enterprise IT across industries and IT models that included chargeback systems or none at all, my perspective:

1. Chargeback systems are important if IT is a “service provider”, and needs to justify every expense; innovation will have limited scope in this context
2. Chargeback systems will always be challenged by the majority of business units, as being an unfair practice
3. You will be required to reduce costs year-on-year irrespective of volume, and especially when business goes through recessionary cycles
4. Even after automation, the effort required for maintaining and managing data can be humungous. This will have the IT team on a defensive stance, churning out unusual associations of metrics in reports

So why is chargeback coming back again? Does virtualization, cloud service, or the next disruptive technology suddenly turn the tables in favor of chargeback? Does it really matter which specific function or business unit pays for the service, considering that it’s a zero sum game for the enterprise? So why should you bring in the complexity of managing unit costs for transactions, memory, CPU, storage, bandwidth, man hours and licenses?

When IT shops struggle to get incremental budgetary support, the practice of chargeback is typically seen as a vehicle to justify the high cost of KTLO or BAU. This is evident if you consider that with the exception of manpower cost, all other metrics have been on the downward spiral over the last decade. Thus, marginal reductions in these KPIs help in sustenance of inflated budgets, while keeping the attention away from metrics that matter (like contribution to business growth, profitability or customer retention).

CIOs should carefully evaluate why they need to implement IT chargeback mechanisms. After all, if they have aspirations to move to the next level of evolution, they should be enamored by business, and not expend energies counting pennies.

Do we need an IT Budget ?

There is a general agreement that 70-80% of the IT budget (this figure varies depending on the reported overall IT operational spends) gets committed on the first day of the year. Whatever remains is typically spent on new initiatives and projects. While the reality may vary from company to company, the same question has been posed time and again in such a scenario.
So do CIOs need to prepare elaborate IT budgets?

In this context, one of the CIOs I was talking to mentioned that he has stopped preparing IT budgets altogether! Instead, he transfers all spends to the business, as they decide the business requirements — whether it’s operational or project driven. He asks them to justify why any project needs to be undertaken, and what should be the ROI. An interesting perspective, I must say.

Such maturity can be reached only in two situations. First is if the organization has evolved to a level where CXOs are in sync with reality and work in tandem towards achieving their objectives. The other situation entails that CXOs are totally disconnected, and have no faith in the CIO’s ability to manage his budgets.My survey of Indian enterprises (by talking to CIOs) reveals that operational IT expenses are typically lower than consultant projections — by about 10-15%. This is a reflection of our lower wage bills, and the ability of Indian CIOs to stretch their IT budgets a bit longer than their peers in other geographical regions.Does the learning from global CIOs stretching their budgets apply to Indian CIOs? To some extent, yes! But the big differentiator that most global enterprises depend upon to shrink costs has limited relevance in India — outsourcing to offshore vendors.

If the CIO splits his budget into two parts — operational IT (business as usual) and business IT (new or incremental projects creating value) — the management of IT budgets becomes easier. CIOs still have to run an efficient shop. Also, accountability still rests with the IT organization, when it comes to managing the overall infrastructure, applications and relationships that create an ecosystem to support business operations. Improvements driven by new technology trends and innovation are essential, and this is what IT organizations have to excel in — even if it is outsourced. The placeholder for such spend is not relevant, whether it is integrated with the business budget or a separate IT budget, as the cost is finally allocated across business units.

Business IT or strategic IT is a larger discussion. The CIO’s maturity and relationship with CXOs is the key to success. Working in step with his/her peer group, a CIO can influence the outcome, which is whether the budget is approved or not. My belief is that an individual CIO who aspires for lateral growth should understand how to manage within a budget. At the same time, he must understand the impact he creates on business operations, customers and stakeholders. For this alone, the IT budget’s ownership has to rest with the CIO.

The Art of creating IT budgets

Budgeting starts around this time of the year for most CIOs, along with the exercise of defining operations cost and investments for the coming year. This process typically lasts from four weeks for the agile to four months (in some cases). Almost every year, there is an expectation to do more with less, until you reach a scenario where “there is no more left to do more with”. During this time of the year, the CFO is at his peak of influence, since all the other functions which want funds try the level best to justify their investments and plans.

Recently, I was asked to present to a group of CIOs on “How to make your CFO your best friend”. Such a subject can be a hair-raising experience for most seasoned players, as it requires a strong financial background and understanding of the business to put across acceptable metrics and KPIs for the management team. This is where a skilled CIO can get budgets approved without the proverbial scissor’s side effects — it’s possible to avoid typical across the board budget slashes (of, say 20%), especially on the operational side of things.

Long time back, I decided to separate the operational budget and the investment (read capital expense) budget. My intention was to let the business decide the projects that they wanted to invest in. This ensured that business created the P&L for their projects.

Obviously, IT had to help the business with the figures and merits of each solution. In most cases, business would choose the best possible solution and succeed in justifying them to the CFO and CEO. This shift signifies that we will help implement and execute the project from an IT perspective, but you (business) own it. Many cases required the creation of innovative KPIs rather than the conventional ROI or IRR models to help the business justify its investments.
While setting the operational budget is relatively easy, the expectation to reduce budgets year on year remains an interesting discussion. In one of the cases, I took a menu card approach to operating expenses. If you want good speed of response from your network, you have to pay higher, like a toll paid to travel faster. Hardware refresh can be analogous to replacing cars every five years, a common corporate practice. Why? Mainly since the cost of maintenance goes up, and availability of spare parts is also an issue.

It’s possible to have the CFO as an ally, if the CIO understands the compulsions and metrics that the CFO has to manage. After all, CIOs are also responsible for managing the cash flow and acting as conscience keepers for the company.

The Budget Challenge

I recently completed the annual ritual of budgeting for the next fiscal year. It is a tedious process and involves a fair bit of effort comprising of collation of inputs from multiple functions. Not that one minds the effort as it provides another opportunity to create some excitement with IT and help the enterprise with some new ideas, but it has a few challenges too.

Our budgeting exercise is a 3 stage process.

In stage 1, the BAU (business as usual) is addressed comprising of hardware, networking, licenses etc, which is the easy part. Progressing to the second stage, we discuss new solutions/systems for current and future business initiatives. This negotiation is fun and we push each other to the limit on how much more we can get while the business unit heads try to minimize what they need to give away. The real challenge comes in stage 3 !

This is when the leadership team/management team gets together to review the numbers for the new year and go over each department budget with a purpose to reduce Capital Expenses and perceived unfruitful operating expenses. A steady state organization will typically find that IT contributes to a significant portion of their capital expenses and some of the operating expense. My recent experience was interesting from two perspectives which I am highlighting below for you.

Discussion on the capital expense veered into uncharted areas of whether everyone needs a laptop or we can reduce our outlay by providing them with desktops; Is it possible to extend the useful life of a computer by another 12 months if some users only use email and word-processing with occasional internet access; and a few others on similar lines.

When we get into project outlays for development, changes and software solutions, the debate gets interesting. Why does System A require 12 man-month effort ? Can it not be completed in 8 ? Why are we continuously changing System B ? Mr. CFO, can you not ask your people to use Excel instead of this expensive Business Intelligence tool ? Everyone does not require Internet access....

How do you manage this ? One of the things that works is advance communication on what IT proposes to do in the next year and how it will impact business outcomes. This message goes bottom up from line managers to their respective leaders who are aware of what they will be paying for and the benefits that will accrue. Failure to do so will result in endless debates and heartburn when budgets get slashed and the ability to innovate is constrained with limited funds. This is important when every function is under pressure to reduce expenses year on year.

I am sure that there are other ways of managing this phenomena, would love to hear from you on this.

P.S. The high point of a similar exercise narrated by a friend-CIO: "Why do you need to spend $120K for a switch ? By the way what kind of switch is it that costs so much ? The switches in my home come for a lot less. I want to see it" !!

Best wishes for a Happy New Year.