Sunny outlook, conservative tech spending defines many cos 2007 approach


The hotel industry is hot, and Marriott International Inc. is one of the industry giants anticipating continued profits this year. In the third quarter, which ended Sept. 30, Marriott posted a 9.4 percent year-to-year increase in its worldwide revenue per available room, or RevPAR — a commonly used performance metric in the lodging industry. And from 2006 to 2009, the company expects diluted earnings per share, excluding its synthetic-fuel business, to rise at a compound annual growth rate of 15 percent to 25 percent.

However, the Bethesda, Md.-based company’s technology budget for 2007 is lower than it was last year, according to Susan Zankman, senior vice president of information resources finance and management services at the US$11.6 billion hotel chain. But that’s OK with Zankman and Howard Melnick, senior vice president of information resources application services. To them, investing more money in technology doesn’t necessarily ensure success. “It’s spending money in the right places,” Melnick says. “It’s having a tight lens on potential projects and seeing how they map to all the criteria. How does it impact the brand? Fit into the technology strategy? What is the financial impact?”

Rather than seeing the drop in available funds as a bad thing, Melnick and Zankman both expected and welcomed it because they see the coming year as a time to turn inward, drive more efficiencies into their internal processes, lower their maintenance and operating costs, and otherwise help fulfill Marriott’s mantra of continual improvement. And where they do plan on spending, it’s with an eye toward helping the business save money in the long run by adhering to a rigorous portfolio management process that ensures application reuse and convergence of technology investment with business strategy.

Plans include continued server consolidation, building out Marriott’s virtual private network, expanding its use of integrated computer-telephony systems for customer service, rolling out its new Web-based labor management system, and training staffers to improve requirements-gathering and reduce project costs. “It’s not a matter of doing fewer things, but finding different ways to work,” Melnick says.

Conservative spending

At a time when many companies are cautiously optimistic about the economy and experiencing growth through acquisition or expansion into global markets, even those with the sunniest outlook have adopted a conservative approach toward technology spending, says Andrew Bartels, an analyst at Forrester Research Inc. Some of this is the result of the downturn earlier in the decade, which forced companies to adopt a wiser and more mature approach to technology spending. And some, Bartels says, is the product of the cyclical nature of technology investment, which goes through times of expansion and growth followed by periods of refinement and digestion.

So despite Forrester’s prediction that technology spending budgets will be up 5 percent, this year “will be a period of persistent austerity, with continued cautiousness and conservativeness in spending,” Bartels says. Meanwhile, Computerworld’s quarterly Vital Signs survey shows that the percentage of IT executives who expect a budget increase dropped from 51 percent last year to 41 percent this year (see charts at right).

During this time, Forrester is urging CIOs to do exactly what Marriott is doing — cutting what Forrester calls their “Moose” spending, or the maintenance and operations of the IT organization, systems and equipment. “Typically, Moose represents 70 percent to 80 percent of IT spending,” Bartels says. “We’re advising companies to keep that spending flat compared to revenues and even in absolute terms.”

Doing so will free up more resources for spending on new initiatives and bring desired credibility to the IT departments and its leader, he says. “Now you can be identifying and investing in new technologies to support or solidify the business, such as security, risk management and disaster recovery,” Bartels says.

Barbara Gomolski, an analyst at Gartner Inc., agrees that there’s plenty of low-hanging fruit when it comes to increasing the efficiency of many companies’ IT infrastructures, such as adopting voice-over-IP (VOIP) networks, redesigning data centers and paring down underutilized applications.

“You can consolidate all the hardware you want, but you can still have an administrative nightmare because you’re running 27 instances of Oracle,” she points out. “The next phase is how to deal with your application overload, and it’s harder to consolidate that because you have to involve the business people more.”

Other ways to cut Moose spending include selective outsourcing, asset management, server consolidation, server virtualization, standardization, retiring redundant equipment, tracking and adjusting software licenses, and using best practices around project management and development, Bartels says.

More is less

A case in point is CitiStreet LLC in North Quincy, Mass. Although it plans to increase its technology budget this year, “we’re definitely getting very austere in what we want to pay for hardware and hardware maintenance,” says Barry Strasnick, CIO at the global benefits provider. CitiStreet’s current hardware maintenance costs are more than $1 million annually, and the company’s goal is to reduce that by almost two-thirds while also enabling better availability, he says.

Strasnick says he’ll accomplish that by aggressively moving from a Unix-dominated architecture to a Linux/Intel hardware model, leading to savings both in terms of hardware acquisition and maintenance. “The costs quoted for hardware maintenance on Intel/AMD computers are significantly less than for computers that could run that vendor’s instance of Unix,” Strasnick says. He plans to migrate from Hewlett-Packard Co. and Sun Microsystems Inc. Unix servers to dual- and quad-core Intel- or AMD-based blades running Red Hat Inc.’s version of Linux.

Other plans at CitiStreet include improving response time and availability for the company’s J2EE applications with software from Azul Systems Inc. and enhancing its host-based intrusion-detection system by working with security software company Third Brigade Inc.

The technology budget is also on the rise at Dick’s Sporting Goods Inc. This is mainly attributable to the Pittsburgh-based retailer’s aggressive growth plan, which entails significant investments in its stores, distribution centers and back office, according to Eileen Gabriel, CIO at Dick’s. However, Gabriel finds that more than ever, there’s increased discussion around exactly which technology projects the company will invest in.

“Just the word investment I think is important,” she says. “We’re taking a dollar of shareholder money and putting it into technology versus investing in a new store, so we should expect to get a return at least as good as any other investment in the company.”

For Gabriel, that will mean increased attention to project management, and not just what falls into the IT group’s traditional territory. “My No. 1 challenge is figuring out the other variables that are going to come into play [that could lead to project failure] and making sure we’re covering those,” Gabriel says. This includes things like ensuring that business processes are aligned correctly and that the right people are involved with the project, including those from the business side. “In the past, IT played ostrich a little bit,” she says. “But we can no longer have

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