The IT Budget Shuffle: Beyond Blinking Lights and Acronyms

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The IT Budget Shuffle Mon 23 Jun 08

We have seen some pretty significant changes over the past five to 10 years in where we spend our dollars in software, infrastructure and personnel.

In software, we’re spending more on customizable applications. We’ve seen a shift away from the large, one-size-fits-all mainframe programs to PC- and Web-based applications that can be customized. Even enterprise-class programs now have more user-controlled features and customizations than just a few years ago.

In addition, we now want integration in our applications. Sales systems need to integrate to accounting systems, which need to integrate to production and purchasing systems, and so on.

Over the past few years there has been a lot of talk about software-as-a-service, or SaaS, where software applications are hosted by a service provider and made available to customers over the Internet. With the notable exception of Salesforce.com, we have yet to see SaaS live up to the hype. I believe that the demand for customization and integration has overtaken the economics of SaaS and that it will difficult for SaaS to become a significant part of IT budgets. Time will tell.

Infrastructure costs have come down. For a while it seemed that hardware costs would be cut by half each year as performance doubled. At the same time, our network costs have similarly decreased. These cost reductions have made IT services more affordable and increased demand for them. It is not uncommon to hear a CIO state that infrastructure cost is no longer a limiting factor in determining what we do.

With the shift toward end-user applications, we also have the opportunity to add infrastructure incrementally as we need it. Need a new module? Add a new server. Given the ready availability of infrastructure, I’m somewhat surprised we don’t see more of infrastructure-as-a-service, or IaaS, where we pay for storage or bandwidth as we use it and our costs go up or down depending on our usage patterns.

Oh, I know there are options for this such as “burstable T1,” a service that lets companies pay only for the amount of bandwith they use, but I’m just not seeing this catch on as a major trend. Arguably, data center outsourcing is a form of this but even here it is typically not truly demand driven. We buy computing power, bandwidth and storage in lumps and approve every major addition. Perhaps there is still a lot of risk aversion on both our part and that of the infrastructure vendors to allow this to become commonplace.

The shift in spending for personnel has taken two forms. The first is outsourcing of both data center and applications development. As a result, personnel costs are now a vendor cost, not a direct cost. The second is in the type of employees. Changes in technology have reduced the number of people we need to run data centers because automation has replaced a lot of these tasks. At the same time, companies have increased headcount in PC support and help desks. On the application end we’ve seen a growth in business analysts, a position which didn’t exist to any great extent 10 years ago, to help work with end users to develop the applications businesses need.

I’ve always said, working in IT may not always be fun, but it is never boring. Managing budgets are a big part of a CIO’s job but it is more than cost control. As conditions change, we have to not only determine how much we need to spend but what we spend it on.

How do you see your IT budget changing? What do you think IT budgets will be like in the future?

This article is also posted on Forbes.com. Feel free to join in the discussion either on this site or at Forbes.com