ANALYSIS
Technology Investments in 2009: 3 Ways to Achieve More With Less

As economic conditions worsen and we struggle to make sense of the new realities of business, it has become a cliché to say that we need to "do more with less;" after the second, third or fourth round of layoffs, less is, in fact, less.

The new challenge for managers is to figure out where and how to apply limited resources and budgets to actually achieve more, not do more, with fewer resources. Over the past six months, many organizations have understandably cut costs out of the business and reprioritized initiatives. With a reactionary and short-term focus, many organizations have not yet fully grasped the mid-to-long term implications of their defensive and, in many cases, survival-oriented strategies.

Cuts Are Coming

In a recent survey of over 1,500 organizations conducted by the Aberdeen Group, 57 percent of respondents decreased (41 percent) or froze (16 percent) their budgets in the fourth quarter of 2008. Furthermore, nearly half (45 percent) of those surveyed had already reduced their 2009 revenue plan. As a result of economic conditions, the majority of the respondents were also planning further budget cuts (58 percent), and four in 10 (42 percent) planned on cutting discretionary spending (such as marketing), headcount reductions (39 percent) and / or travel restrictions (37 percent). Clearly, there is much uncertainty right now with regard to 2009 strategic plans. In general, many organizations have already reduced spending, headcount and capital investments, yet many are planning to do the same if not more in the coming year.

When asked about the impact that current economic conditions had on the 2009 growth strategy , 38 percent of surveyed organizations indicated that they were going to "stay the course," 37 percent were planning for expansion, and only 18 percent were planning on contracting (8 percent didn't know). While only 30 percent of respondents indicated, with certainty, that economic conditions have not impacted the timing of major initiatives, half of the respondents in the recent Aberdeen study had already delayed major initiatives (22 percent by more than six months) and a further 20 percent were "not sure" what was happening with their initiatives. That said, nearly a third of the surveyed organizations (30 percent) planned to increase their technology budget in 2009, and 27 percent indicated that they would add headcount in 2009.

Three Ways to Achieve More With Less

While thinking that you can expand or "stay the course" without incremental investment may be delusional thinking, there are opportunities for organizations to achieve more with less by leveraging their current infrastructure, renegotiating Software-as-a-Service (SaaS) / service contracts, or delaying the start of initiatives until at least Q3 2009.

• Leverage Your Current Infrastructure. When respondents were asked to think about the past two years and evaluate the top two software technologies that had the most pronounced effect on their organization's success , CRM (32 percent) placed in the top three most often, followed closely by ERP (enterprise resource planning) at 31 percent; and business intelligence (BI) was chosen as a top-three technology by 25 percent of respondents. When asked which technology will have the greatest impact over the next two to five years, BI was rated No. 1, followed by "enterprise application enhancements / extensions." Furthermore, with 20 percent of respondents indicating it as a top priority, "enterprise application upgrades" was the highest rated software-related technology investment for 2009. The interest in BI and extending the current infrastructure is hardly surprising. For a project to get the green-light in this environment, it should be well-defined, limited in scope and have a short-window return on investment.
• Renegotiate SaaS Contracts. More than a quarter of respondents (29 percent) are already planning to renegotiate supplier relationships as a direct response to current economic conditions. SaaS applications have grown steadily over the past couple of years based on a value proposition of low up-front investment and well-defined "land and expand" departmental implementation strategy on the part of many vendors. Although having annuity revenue is enviable for any vendor in this market, widespread layoffs and hiring freezes will inevitably put pressure on some of the smaller SaaS vendors as contracts come up for renewal and renegotiation -- that is, fewer employees at end-user organizations means fewer seats for SaaS vendors. In they haven't already, current and prospective users of SaaS solutions should recognize this opportunity and aggressively negotiate based on the new economic realities when renewing or signing first-time contracts.
• Wait for the Best Deal. Like many organizations, software vendors were not immune to the cuts in spending on marketing and lead generation in Q4 of 2008. With a typical nine to 12 months sales cycle for enterprise software, this means that vendor pipelines will really begin to thin out starting in Q3 of 2009. Furthermore, organizations with a strong professional services bench may be in the position to further reduce day rates rather than reduce headcount. These conditions give organizations that are inclined to move ahead with projects unprecedented negotiation power when evaluating and negotiating with short-listed vendors.