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For IT Budgets, Less Is More

When it comes to IT budgets, new habits are hard to break.

Throughout the 1990s, companies spent heavily on IT. They built enterprise systems, gave knowledge workers their own PCs, developed Internet platforms, and tackled year 2000 remediation. Companies of all sizes and types mainlined IT into the bloodstreams of their operations. Corporate chieftains felt they had no choice but to spend a disproportionate amount of their capital budget on technology, just to stay competitive. Then the dot-com bust and recession hit at the turn of the millennium, and companies reined in IT investments. Yet, when the economy started to expand, as it is now, corporate spending on IT didn't follow.

Call it the new normalcy. CEOs have put their CIOs on low-carb, high-protein budgeting diets. "IT budgeting has changed, and especially from the venture mind-set of the 1990s, when ideas did not need to be cost justified if they provided differentiation of competitive advantage," says Bill Halnon, VP and CIO at leaf-tobacco merchant Dimon Inc., in an E-mail. "CFOs and CEOs are scrutinizing payback of IT investments much more diligently than in the past."

Companies are heading into a budget-leveling period in which they balance cost reduction with new initiatives, IT consultant Bruce Rogow says -- Photo by Sacha Lecca

Companies are heading into a budget-leveling period in which they balance cost reduction with new initiatives, IT consultant Bruce Rogow says.

IT's Fiscal Squeeze"), Rogow writes that many companies seem to be heading into a budget-leveling period in which they balance cost reduction with new initiatives (see story, "The Odyssey: Sit-Downs With CIOs Yield Insights").

That's what's happening at the $15.9 billion-a-year pharmaceutical company Wyeth. "The demand and need for IT services and systems exceeds the company's ability for additional funding," says Bruce Fadem, CIO and VP for corporate information services. So, "efficiencies within the current IT investment must be found to support some of the new initiatives." Wyeth is partially funding a new global data-warehouse system through savings made elsewhere in IT. For instance, over the past two years, Wyeth spent 67% less on storage but still experienced a whopping 587% increase in capacity. Similarly, spending on networking and help-desk support has been slashed by 60% and 39%, respectively, while networking capacity rocketed 346% and help-desk calls soared 67%.

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