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The spending tide is turning

Is business really doling out more budget than we think?

Read time 6min 40sec

A study recently undertaken by the Global Institute for IT Management has found that while IT budgets are on the increase, they still account for significantly less of organisations' total revenues when compared with three years ago. The survey showed that CIOs have fewer internal employees, are relying much more heavily on outsourcing and cloud solutions, and that larger amounts of IT spend are coming from other areas of the business rather than just from IT departments.

"SMAC (Social, Mobile, Analytics and Cloud) technologies are clearly transforming the industry. While IT appears to be quite resilient, with IT budgets, hiring and salary increases on the rise, upon closer analysis, these increases continue to evolve cautiously. This guarded trend has brought increased attention to reducing IT budgets through IT infrastructure spending (especially cloud) and sourcing (especially offshore)," the report stated.

It varies

Although this was ostensibly a global study, Brainstorm asked South African CIOs and other IT leaders whether it reflects the trends in local organisations.

According to Ken Jarvis, owner of Jika Africa Advisory Services and ex-CEO of SARS, Multichoice and Naspers, among others, the accuracy of these aggregated results vary from industry to industry. At the moment, he says, mining and manufacturing are experiencing a great deal of cutbacks, and there is certainly no innovation in these industries that are taking strain.

On the other hand, in banks and the healthcare fraternity, for example, he is certainly seeing growth.

"I have seen an increase in outsourcing or smartsourcing. This is as a result of a mixture of the cost of available skills and the ability to respond with speed to the needs of the business. Businesses are no longer able to wait, so they're offshoring a whole lot of work to places where people are quicker and willing to work longer hours, like Estonia or India," says Jarvis.

He says he has observed an uptick in smartsourcing, in which companies, having learnt lessons from the past when this model didn't work so well, are now able to use it effectively.

On the other hand, he says, there hasn't been any uptick in cloud uptake in the last 18 months. "South Africa is still worrying about governance and POPI (the Protection of Personal Information Act) and is concerned about where its data is kept. Although there are answers to all of these concerns, there remains a low risk appetite in South Africa."

I would venture to suggest that this trend is more the experience of major First-World economies, where outsourcing is a much more viable option, as opposed to South Africa, where choice and product is far more limited.

Guy Saville, SA Homeloans

Finally, he agrees wholeheartedly that business units are now bypassing CIOs in the purchase of IT solutions. "I'm not getting any direct calls from those departments, but I am getting called in by IT, which is asking me to solve reintegration of this technology or to help with support or governance around it."

However, he says he is observing that 50 percent of his engagements are now initiated by business rather than CIOs. "This is not to the exclusion of the CIO. It's just that these strategic projects are fundamentally under the control of the business - and CIOs are welcoming this. It's a magnificent turnaround - allowing CIOs to do what they do best and businesses to take ownership of what they should."

Collaboration

Lise Hagen, research manager in Software and IT Services Africa for the IDC, says her company's research has shown that there are many instances of the kind of 'shadow IT' that Jarvis mentioned. A survey that they carried out has revealed that:

* Some CIOs are aware of shadow IT and let their business unit managers do these kinds of implementations: 27 percent
* Some are aware of shadow IT, but it is not sanctioned: 13 percent
* Some CIOs are not aware at all: 21 percent
* Some CIOs 'have blinkers on' and believe there is no shadow IT in their organisations at all: 38 percent.

"That last point reflects the very outdated command-and-control approach that doesn't reflect the reality in organsations today," she says. "Savvy CIOs acknowledge that this is taking place, and use their IT budgets to get what both they and their business units want, and make this approach central to IT strategy."

She says the level of collaboration between IT and the business units as opposed to autonomous rollout is very much dependent on the organisational maturity and the links that exist between IT and the business.

"And finally, don't underestimate the impact of newer technologies like virtualisation and automation on IT teams," she says. "These technologies make it easier to manage IT functions, and while they will never replace an IT team member, people are shifting away from the routine tasks and are now playing a more strategic role, so headcounts might be shifting away from IT itself and moving into the business."

Guy Saville, CIO of SA Homeloans, says the Global Institute for IT Management survey reflects interesting trends, but these aren't what he is seeing at his organisation. "I would venture to suggest that this trend is more the experience of major First-World economies, where outsourcing is a much more viable option, as opposed to South Africa, where choice and product are far more limited."

Cost reductions

He believes the 'everything as a service' model is driving the outsourcing trend and desired cost reductions. "IaaS (Infrastructure as a Service) is being extended to PaaS (Platform as a Service), making it easier for individual business units to procure their own IT services wide of central IT - and hence maybe the budget is being moved out to business units where they can outsource for skills or buy specific PaaS IT services."

While this encourages alignment and accountability, he points out that IT is expensive and complex to manage, and the risk is always that there might be inefficiency, duplication of skills and costs, and a departmental rather than enterprise view of IT. "It could be back to the bad old days of IT silos.

"The challenge for CIOs is to ensure that enterprise IT talks the language of business, and that the company has the right digital platform, which is properly aligned to focus on the specific competitive drivers facing the business units."

For this reason, he says, it makes much more sense for IT to be actively provided and managed at an enterprise level for a company like SA Homeloans. "For future cost savings and efficiencies, we're trying to position ourselves to take advantage of IaaS and selective outsourcing options when they become technically and commercially viable in South Africa. For example, we are actively looking to migrate to open source platforms over time to facilitate this."

And, of course, he points out that new open source technologies hold the promise of substantially lower costs than traditional proprietary technologies and datacentres.

It seems that South African IT leaders agree: organisations are enthusiastically purchasing and working with IT as a business enabler and strategic tool. The shift in IT budgets is coming from the increasingly blurred lines between business and IT - which can only be a good thing in an increasingly technology-powered landscape.

This article was first published in Brainstorm magazine. Click here to read the complete article at the Brainstorm website.

Pic caption: Ken Jarvis, Jika Africa Advisory Services

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