Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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When Frugality Fails

by Mark P. McDonald  |  January 20, 2012  |  5 Comments

For the past 10 years, cost has been the mantra facing CIOs and IT organizations.  Cost benefits are a factor in just about every major technology wave in the past 10 years.  Cloud, the current theme, is presented as a cost play so is sourcing, services, virtualization, open source — if I did not know better I would think that getting IT costs down is the only thing that matters.  The lead story is cost with the good business reasons for technology a secondary concern.

IT frugality can be defined as putting cost considerations at the forefront of technology decisions.

Ten years of tight budgets indicate that IT frugality has largely worked, Based on Gartner Executive Programs CIO survey results, a $100.00 in CIO IT budget in 2002 is now worth $105.50 in 2012.  Adjusting for inflation that same $100.00 in 2002 would be worth $125.75.  In other words, constant dollar terms CIO IT budgets have decreased by $20.25.

CIO IT budgets are influenced by a number of factors and the calculation reflects a global weighted average, so your personal experience will be different based on your company’s strategy, industry, geography and other factors.  This is a crude factor at best, but it indicates the extent of IT frugality.

Based on this crude indicator, CIOs been adept at managing from a financial perspective in demonstrating their frugality and their ability to do more with less. While technology advances, improved price/performance ratios and other developments have ‘saved’ IT, made it more operationally productive, has IT been recognized as a source of productivity, has this frugality made IT better?

I doubt it.  A decade of IT frugality with limited catastrophic IT failure seemed to prove the point that IT is a cost rather than a capability.  The result is a cycle of cost cutting, benchmarking, renewed cost cutting, etc.  Each cycle was driven by macro-economic conditions and micro-executive vision about the role of technology.  So long as you were measuring IT spend as a percent of revenue, you could claim success as it appeared that IT frugality worked – we were getting more for less, right?

While IT spending appears to be in check, what has happened to company capability and corporate IT?

I believe that IT frugality has failed.

Failed in the sense that IT frugality has not delivered ‘more‘ so much as it has cost ‘less‘,

Ten years of tight budgets have changed IT costs but done less to raise IT capabilities.

IT frugality has required CIOs to devalue IT, lowering its unit costs either through sourcing, services, the cloud, renegotiating supplier contracts or cutting IT resources.

These strategies have worked by emphasized the “less” part of IT Frugality and in many cases failed to deliver more to the business.

How can I say that?

Because, the average IT organization is still plagued by the issues it faced a decade ago: weak alignment, poor project performance, limited skills, constraining complexity, lagging legacy systems, a overall weak benefits realization performance. All of these are issues that IT cannot invest its way out of.

All of which create a cycle that re-enforces further IT frugality rather than looking for IT re-imagine its role and how technology amplifies the enterprise rather than just having IT continue to automate and administer back office systems.

The simple answer is to spend more on IT. But I am not so sure that more money is the answer.  Sure IT budgets need to keep pace with the rest of an enterprise’s operations, but throwing money at IT does not solve these problems.  CIOs need more resources, but they also need to reform IT, change the way it works, manages, plans and measures its success.

Frugality begets more frugality.  Reform requires thinking differently.

What do you think?  About IT frugality?  About IT reform or re-imagination?

More on that subject in latter posts.

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PS:  I borrowed the title after reading Peter Coy’s article in Bloomberg Businessweek, December 26, 2011-January 8, 2012 Page 48.

5 Comments »

Category: 2012 Economy Leadership Management Strategic planning     Tags: , , , , , ,

5 responses so far ↓

  • 1 Interested in the analyst position   January 20, 2012 at 5:59 pm

    Your blog post brings to light that “doing more with less” is not always possible. imho, IT complexity is the root cause of the failures. You make only a passing mention of it in your post. As Andrew Tanenbaum once said: “The nice thing about standards is that there are so many of them to choose from”, with the advent of cloud computing, we have a proliferation of new technologies, standards and management solutions. Obviously frugality is not able to deal with complexity.

    thanks
    Shankar

  • 2 Mark P. McDonald   January 20, 2012 at 6:10 pm

    Shankar

    Thanks for your comments, but IT complexity is a symptom of how IT Frugality has failed. We make current year budget decisions knowing full well that all we are doing is building a growing software deficit (as Andy Kyte says) that someone other than us will have to pay.

    A deficit created by trading short term against the long term knowing it will impact future generations — sounds familiar?

    Mark

  • 3 Brad Murphy, CEO Gear Stream   January 25, 2012 at 9:09 am

    Mark, well articulated article.

    I too blogged this week ( http://bit.ly/xYbaEN ) about the same theme, but used MoneyBall (the movie) to make a point about CIO’s and senior leadership focusing on solving the “right problem”.

    COST reduction is NOT the problem or goal we should be pursuing. Our goals MUST be focused on innovation and marketplace engagement that drives business and customer success. Must we do this cost effectively? Absolutely.. no choice there… but the point is that defining the goal or problem as “cost reduction” will NEVER result in innovation.

  • 4 Murali   October 17, 2012 at 1:27 am

    I commented on the other article but pretty much along the same lines. Innovation started taking a back seat in the CIO’s agenda at approximately the same point in time when the total IT costs in an organization ceased to be a fraction of the overall costs from the EDP days. I know the general allergy to viewing IT costs as a percentage of the revenue of an organization but the moment this started growing to integers and nearly touching double digits in a few cases, is the exact point in time that the agenda became subservient to the CFO’s and CEO’s ‘cost of operation’ agenda.

    Thus went innovation out of the proverbial window!

    http://saysmurali.blogspot.com/2012/06/innovation-directed-at-business.html
    http://saysmurali.blogspot.com/2012/06/time-for-burial-tco-play-has-run-its.html

  • 5 CIOs know a lot about sequestration   March 1, 2013 at 5:58 am

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