Johannesburg, 17 Mar 2003
Twenty percent of corporate IT budgets are misspent and this is making executives take a long and hard look at how they spend their budgets on IT. As this reality drives home, return on investment has become the mantra of most chief executives.
This is according to Douglas Reed, MD of premier Internet service provider (ISP), DataPro.
Quoting statistics from Gartner, Reed said $2.7 trillion was spent worldwide on information and communications technology - but an estimated $500 billion was wasted.
"Even though this figure is hugely disturbing, many CIOs, CFOs and CEOs think this figure might even be conservative. This, then, is the current mood we are experiencing about investing in IT - and it`s not just an American sentiment.
"As the IT investment bubble burst it brought technology providers down to earth. The hype, especially with the dot-com start-ups and initial success stories - or promises of success - has done a lot to sour market sentiment."
Reed said there have always been efforts to correlate IT spending with productivity - and there are many models to try and reflect this - but whatever model a company may choose, you can be sure that the bottom line is that CEOs are going to want to justify their IT investments.
"One way to quantify a company`s ROI is to take into account the cost of capital of certain investments. Where the returns exceed the cost of using the required capital, the investment can be deemed as positive. But when it comes to technology investments actual returns are not that tangible. This is the quandary many company executives face.
"Today companies are a lot wiser. They are far less prone to throwing technology at any business problem. CEOs delve deeper into the actual problem than ever before - and first come up with a business plan before turning to technology. Once they have a clear business plan it is time to sit down with their vendor and evaluate what technology will assist to fulfil that business plan.
"CEOs are also facing high monthly costs, such as the servicing and support of applications. These days they are not just willing to pay these high overheads without their systems providing competitive results. They want their systems to do more than just cut costs and improve operational efficiencies.
"This is one of the reasons why outsourcing is growing in popularity. Instead of maintaining one`s own infrastructure companies approach the technology provider to provide the infrastructure and then pay a certain usage fee. These technology providers, who invest heavily in the necessary infrastructure, can actually make a return by providing similar services for several clients. This sharing of services brings down costs for the companies and creates a market for vendors.
"This is the type of mindset that company executives have adopted - and it is all about justifying their IT spending. Technology providers need to understand this. They need to work closely with their clients and come up with ways of providing them with a tangible return without seeing their own profits plummet."