Cutting IT costs is so 2011

Cutting IT costs is so 2011

Summary: The good news: McKinsey survey finds cost-cutting no longer a top IT priority. The bad news: expectations are higher, with IT seen as less effective at meeting business goals.

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IT leaders are their own harshest critics. Overall, both business and IT leaders are more negative about IT performance than they were in previous surveys, a new study from McKinsey states. However, the IT executives in the survey "judge their own effectiveness more harshly than their business counterparts do. Compared with executives from the business side, they are more than twice as likely to suggest replacing IT management as the best remedy."

Data Center at CERN 2 -photo courtesy of CERN Press Office
Photo: CERN Media Relations

In fact, 28 percent of IT executives would vote for a change in their organization's IT leadership -- compared with 20 percent of their business-side counterparts.

These are the key takeaways of a new survey of 807 IT business and executives, published by Naufal Khan and Johnson Sikes, both with McKinsey. The good news, they report, is that cost-cutting is no longer a top IT priority. There's now a strong emphasis on building the business. The bad news, however, is that IT is getting less effective at meeting business goals. Is it because the bar is being set higher for the business aspect of IT?

The survey finds, for example, that "improving the effectiveness of business processes" is the top-ranked IT concern at organizations, up from 47 percent in 2011 to 61 percent today. Reducing IT costs has dropped in priority, from 44 percent to 31 percent.

Accordingly, IT budgets are on the upswing. Close to two-thirds of executives, 64 percent, say their budgets for new investments will increase next year, up from 55 percent who said so in 2012, Khan and Sikes report. However, executives are evenly split on whether operational spending will increase or decrease.

Only 42 percent of IT executives see their departments as being effective at managing their infrastructures, down from 49 percent in 2012. Only 20 percent feel they are being effective at "driving technology enablement or innovation in business processes and operations, down from 22 percent the previous year.

Most IT spending will go toward infrastructure—as they have said since 2010—followed by core transactional applications. Cloud is likely to change this equation in the years to come, however. As Khan and Sikes observe: "Looking ahead three years, executives expect less of their budgets to go to infrastructure, perhaps because infrastructure is the area within IT where the head count is most likely to have decreased due to companies’ use of cloud-computing technology."  Rising stars in the IT scope include analytics and innovation (a very broad term indeed), projected to get an increased piece of the IT pie in the years to come.

Two-thirds of IT executives report challenges with acquiring the right skills to get this all done. Accordingly, McKinsey finds, the most acute needs for IT talent are in analytics, joint business and IT expertise, and mobile and online skills. This varies by industry -- for example, financial-services executives seek enterprise architecture skills, but are less focused on analytics then other industries. Companies engaged in B2C are much more likely to be seeking analytics skills than their B2B counterparts as well.

IT Budget Spending -- Current and Planned

  Current   In 3 Years
Infrastructure 27%   19%
Core transactional applications 26%   22%
End-user communication/collaboration 12%   13%
Security 12%   14%
Analytics 11%   15%
Innovation 11%   17%

(Source: IT under pressure: McKinsey Global Survey results, 2014.)

Topics: IT Priorities, Cloud, Enterprise Software, Software Development, IT Employment

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