Balancing IT innovation investment in a recession

Unless managed carefully, blind cost-cutting may backfire and eventually leave IT weakened and uncompetitive.

As the weak economy continues, many organizations have blindly cut costs to reduce IT's footprint. Unless managed carefully, this strategy may backfire and eventually leave IT weakened and uncompetitive.

A recent research note from The Hackett Group on IT value and portfolio optimization touches this issue. The report states that IT leaders plan to invest substantial resources in innovation, despite the bad economy:

Over the next few years, top performers project that they will allocate no less than 60% of their IT capital to innovation and improvement, compared to the peer group’s 35%. Infrastructure and utility constitute the balance of the investment budget.

The report underscores the importance of continuing to make strategic IT investments at this time:

Given that most companies have sharply cut costs, there is an immediate need to realign the IT investment portfolio, understand how to define IT investment categories (the four categories defined above can be used as a starting point), and set goals for allocation by investment category. Achieving these goals will require the development of an IT portfolio management capability comprising the processes, skills and supporting tools.

THE PROJECT FAILURES ANALYSIS

Balancing short- and long-term planning is particularly difficult when present financial realities remain challenging. Organizations facing financial duress find expedient financial decisions to be especially attractive, even if those decisions weaken the organization's position over time.

The portfolio approach Hackett recommends makes sense, because it offers an explicit method for balancing multiple, even conflicting, IT investment goals.

However, I think it's a mistake for organizations to adopt a cookie cutter approach and allocate 60% to innovation just because other companies are doing that. Rather, every organization should undertake an analysis to determine its own optimum portfolio investment levels. These portfolio choices will be a function of business strategy, technical requirements, investment capability, competitive landscape, and so on.

Bottom line: Take care of present needs, but keep on eye on the future as well. Eventually, the economy will turn around and you should start thinking about that now.

[Photo from iStockphoto.]

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