Like many budget-constrained IT executives, PHI Inc. CIO James Quinn will be heading into 2011 with a list of worthy projects that the global helicopter transportation company will nonetheless be deferring — at least for the time being. But there are certain kinds of projects you won’t find on that hold list.
Key among them are projects that are “customer-facing or anything that saves dollars,” says Quinn. “Anything that involves process improvements and anything that can show a fairly fast ROI is also getting pushed to the front.”
On the expense side, PHI will continue to reduce costs by outsourcing “keep the lights on” operations, even farming out the maintenance of production databases. The company is also renegotiating its agreements with just about all of its IT and services providers, including those whose contracts haven’t yet expired.
“We’re being very aggressive, going back to vendors to work multiyear deals in exchange for cost reductions today,” Quinn explains. “We’re seeing our customers do that to us, and we’re doing the same thing with our vendors.”
IT shops in all industries are approaching 2011 the same way Quinn is: They plan to vigilantly manage flat budgets and further slash already significantly reduced costs. Indeed, IT executives who responded to Computerworld’s 2011 Forecast survey ranked budget constraints and economic pressures as their No. 1 challenge in the year ahead. And six out of 10 respondents indicated that even though the economy appears to be improving, the cuts they made in the past 18 months or so will become permanent.
Even more notable is that the projects IT executives say rank highest on their 2011 priority lists are those designed to cut costs even more. Most of those projects fall into three broad categories: revamping and then automating various business processes; consolidating data centers and implementing technologies that help save money, such as virtualization and cloud services; and outsourcing or using software-as-a-service providers for routine tasks. The idea is that by automating and outsourcing the work that just keeps the lights on, IT departments can focus their valuable staff resources on innovative projects designed to grow the business.
But don’t expect a big run-up in IT job openings. For the most part, CIOs don’t expect to invest in additional full-time staff next year. Rather, the focus is on investing in new technologies that will automate operations and lower costs — and decrease the need for additional employees. The technologies that survey respondents said they are piloting or beta-testing are server virtualization, desktop virtualization, and mobile and wireless devices.
“Even in this downturn, we’re seeing a significant investment in technology,” says Adam Noble, CIO at GAF Materials Corp. So are his CIO peers, he says. “They’re not hiring, but their investments are going up.”
Energy company Southern Co.’s generation business is contemplating virtualizing all of its servers and desktops, says CIO Marie Mouchet. “It’s an option we’re considering systemwide. We have application virtualization and desktop virtualization pilots under way. We have had a lease program for our desktops, which we rotate every few years. As they expire, we’ll be evaluating moving to virtual desktops,” she says.
As for new IT jobs, “we are not looking to hire additional people to meet needs,” Mouchet says. Instead, the company plans to upsize and downsize using contractors.
But there are also organizations where investments in both technology and staff are at a standstill. Among them is the Tennessee Technology Center at Shelbyville, one of 27 such centers across the state that along with six universities and 44 community colleges make up Tennessee’s higher education system.
“One of the biggest problems is that there isn’t revenue flowing into the state, and one of the first places they look to cut is education. We’re doing without 20% of the IT budget we had last year, and last year we had 10% less than the year before,” says Steve Mallard, the center’s IT director.
He says he’s looking for any and all ways to keep costs down, including using more open-source software, bringing on student interns to work in IT, recycling hardware, and building 40% of the computers and virtually all of the servers in use at the center.
At the Wisconsin Department of Health Services, automating the state’s vital-records systems is the top project queued up for 2011. By making birth, marriage, death and divorce certificates and other documents available electronically, the state hopes to both cut costs and improve services to citizens, says CIO Bob Martin. The project comes on the heels of a recently completed $4 million statewide data center consolidation project.
But completing the vital-records project — as well as the dozens of smaller “cleanup” projects Martin has in the works for 2011 — will be difficult, since the agency doesn’t plan to fill the 10% to 15% of IT positions vacated through attrition in the past year or so.
Making matters even worse is that statewide, about 35% of government employees, including many in IT, are eligible to retire in the next three to five years.
“It’s a tough balancing act because at the same time that we’re being asked to automate more and more — which makes perfectly good sense — there is a shifting and shuffling of roles and responsibilities among existing staff,” Martin says.
“We can’t fill those positions, and they may be taken away for good as part of a statewide budget fix,” he adds.
Anoka, Minn.-based Rural Community Insurance Services, which provides crop insurance to the agricultural industry, is looking to revamp and streamline how customers interact with the company online. “Our customers have to do a lot of work and provide a lot of information, but we can actually prepopulate much of that information with data we already have from other agencies,” explains CIO Rick Greenwood.
By prepopulating crop data and codes and other information into applications, “we can complete 70% of information that customers would otherwise have to key in. After that, all they have to do is validate the information and provide a digital signature, which is a big efficiency,” he notes. “We’re looking for internal efficiencies, but we also have to look at how to make our customers more efficient.”
Similarly, Jeffrey Pattison, CIO at Inttra Inc., a Parsippany, N.J., company that provides e-commerce systems to the ocean freight industry, says, “We’re trying to keep service levels up and keep costs as low as possible.” One way to do that is to build more rules-based technology into customer-facing systems, which can then be customized by individual users to streamline their own operations.
“If we can run and grow more efficiently, we can free up more dollars to do R&D and innovative work,” Pattison says.
In the New York State Office of Temporary and Disability Assistance, CIO Daniel Chan‘s biggest project for 2011 is called Functional Roadmap. The initiative involves working with an outside consulting firm to review just about all of the organization’s business processes and then re-engineer them, automating wherever possible.
“Right now, we have 27 different programs that our clients may be eligible for, and each program is administered very differently. We’re looking to consolidate to one or two processes from 27 different ways of doing things,” Chan says. “Ten [percent] to 20% improvement is not acceptable. We’re looking for multipliers of five or 10.”
Running for Cloud Cover
Chan is also looking outside of his IT organization for solutions. “I think we spend entirely too much time tinkering with hardware,” he says. “Over time, we can outsource most of our IT infrastructure. Instead of buying and building and managing servers, potentially we could engage a cloud provider and rent capacity. We are experimenting in-house with cloud, but there are still a lot of security-related concerns.”
Haggen Inc., a 32-store chain of supermarkets in the Pacific Northwest, has already extensively consolidated its data center operations by virtualizing servers. “Now we’re looking at storage rationalization and optimization,” says CIO Harrison Lewis. “Before, we might just acquire more storage, but now we’re looking at Tier 2 and Tier 3 data and moving it off to a private cloud.”
A recent internal study showed that 49% of data that Haggen had been storing hadn’t been accessed in two years. This has prompted a more rigorous review of all IT assets, with an eye toward distinguishing exactly what offers a competitive advantage and should be kept in-house and what should be outsourced.
“If it’s not an area where we need to do a great deal of customization, software-as-a-service makes sense,” Lewis says. In 2011, Haggen will be evaluating other SaaS options, including Google‘s suite of productivity applications. “From everything I’ve seen so far, it can make sense for us,” notes Lewis.
The bottom line, says Forrester Research analyst Bobby Cameron, is that companies will focus on continuing to drive down costs throughout 2011.
“As the IT organization focuses more on process, they’re also consolidating IT, moving to shared services, and there is a huge acceleration in their ability to automate services,” he says. “The whole concept of preprovisioned environments — with cloud and virtualization — takes automation to the nth degree.
“All of these accelerants are going to continue to drive down the cost of delivering IT,” adds Cameron, not only in 2011, but for the foreseeable future.