IT at the mid-sized enterprise in 2012

Through research (Corporate Executive Board, Gartner, LinkedIn, Blogs I follow, etc.), my own professional experience and my network of colleagues at similar sized companies, I have come to learn a few things about IT (Information Technology) within mid-sized organizations (those with revenue under $750M).




First, some fun facts, then some general advice

• About half of the CIOs report to the CFO, with the other half reporting to either the COO or CEO.


• CIOs who report to the CEO have budgets that are about a third bigger than those with other reporting relationships.


• Those budgets are, on average, 2-4% bigger in 2012 than they were in 2011.


• There are generally about 4.5 IT employees per 100 company employees.


• If you're a CIO with fewer than about 25 FTEs, you don't have nearly enough time for higher-value activities; you're too busy in the weeds.


• The average IT spend per employee is about $13,000. That's a portion of IT staff time, hardware, software and communications fees.


• IT budgets seem to be about 3-4% of revenue (that's the middle of the bell curve; I have operated at the other extremes of 1% of revenue or 8%)


• Most of the operating expense budgets I have managed or seen are heavily (90% or more) non-discretionary. You have to pay for licenses, network bandwidth, hardware and hardware support. Only a small percentage of the midsize IT operating budget is in any sense "discretionary".

So, what does all of that mean?

Hire Smart

Well, it means it's hard! A mid-sized company has all of the same needs of the larger enterprise. They demand the same level of network availability, software support and business process optimization. If it is a public company, it has the same SEC, HIPPA and other regulatory requirements as a Fortune 100.

With a smaller staff but many of the same burdens, you need to hire talented and versatile people. At a mid-sized company you can't afford to have a person dedicated to a single technology like email or database administration.

You also can't afford to have people dedicated to technology. Rather, you need staff who have solid business skills and who can play a key role in business process design.

 

 

Architect and Plan Carefully

Mid-sized companies usually grow from small companies. Small companies do things quickly and "just good enough." The small company has a reactive IT department (which is often only a few people); the small company identifies a need and then technology is sought to assist.

But at some point you are going to find an unappealing stew of technology, bits and pieces thrown into the data closet with no regard to interoperability. As the saying goes, if you don't find time to do it right, you'll have to find time to do it over. So try to come up with a 3-5 year technology plan.

The First One Costs a Lot!

In that 3-5 year plan, recognize that doing something new is going to have a heavy initial cost. I once walked a CEO through a complex budget to have him pause and start to grill me on the BlackBerry spend. I had to explain that at this point, each new BlackBerry cost the company $300 for the unit and $50 a month for the plan, so call it a grand a year.

But I went on to explain that unless we had zero BlackBerries, then he was going to still need to pay for a BlackBerry Enterprise Server license and server(s) and an engineer to support them. That first BlackBerry cost you $150K.

Things are getting worse in this regard for the mid-sized enterprise. RIM is seemingly going out of business and now everybody wants an iPhone or Android. Even in a BYOD (bring your own device) world, there are the same requirements for support staff and mobile device management hardware and software. The security and compliance demands of mobile devices can be quite high on the IT staff, but this is rarely baked into the thinking (i.e. the budget or the staffing model).

So just be careful with new technologies. Video-conferencing is a good example. Will it make your company money? Probably not. Will it pay for itself in reduced travel costs? Well, maybe there will be an offset, but it certainly won't defray the costs, let alone the demands on support staff.

Prioritize

There is going to be more demand for services than IT resources to supply them, so it will be critical to prioritize them and frequently return to this project portfolio for review. I have written much on this topic here on the Dojo.

I like to look at things a couple of ways. First, put all requests and ideas on an impact/effort matrix:

You have to be thorough and honest with these rankings, and they should each be backed up by a business case. Once you have at least relative placement of projects, concentrate first on the high impact/low effort areas.

Gartner has their "run the business, grow the business, transform the business" paradigm. I've seen others add in cost reduction projects as a separate category:

So, there is a portion of your work (and it's the biggest) to RUN your business - to keep the lights on. Then there are projects which help you GROW in areas that you already operate. Say you have a Customer Relationship Manager that can't keep up with growth levels. Replacing this CRM would be a grow project. Then there are those things that TRANSFORM your business. These are new ideas and new functionality. If you haven't had a CRM, then the first implementation can be transformational.

Schlumberger and others have refined that with the idea that there are things that are MANDATORY (legal or regulatory compliance), INFRASTRUCTURE (optimize IT and reduce costs), INNOVATION (projects that confer competitive advantage - e.g. break into a new vertical) and BUSINESS OPPORTUNITY (realize measurable business benefits, increase revenue, decrease cost).


Which I like a bit more because it specifies a little more what "transforms" the business as well as recognizes those things which must be done. So the trick for your company is to figure out the percentages for each of those 4 areas. In budgets I've managed, I see 60% or more going into RUN or INFRASTRUCTURE type projects. This percentage will get even higher as the company matures and has put into place many transformational technologies. Once the transformation is made, the hard work of keeping it running begins.

Finally, I remember reading a book (Debugging the Development Process) by the guy that brought MS Excel to market. He said his day was so interrupt-driven that he finally printed a simple slogan and put it in front of him on his office computer. It read:

How does this ship product?

And when that phone call or email or person at the door showed up with a request for something new, he would glance at that and ask himself the question. I am doing the same thing now at my job. I ask myself three questions:

Is this unavoidably necessary?

Does this improve revenue?

Will this cut costs this year?

If I can't answer at least one of these affirmatively, then the contemplated project is likely to go on a "someday" list.

Be Prepared to Scale

Public companies have to grow or die. And so the day will come (hopefully!) when you graduate to being a large enterprise. If you've done a good job at architecting, planning, and prioritizing what you and your staff have done, then you will be able to scale up easily and cost-effectively. Your systems that could serve 700 users should be able to accommodate at least 7,000 with minimal changes. At 4.5 FTE's per 100 employees, you used to have a staff of 31 folks. With 7,000 employees you've grown to 300 in IT. You now have new challenges and luxuries. The luxury is you can have specialists. That's also the challenge. Maybe what (and who) got you here is no longer sufficient to carry you forward.

I think this is the greatest benefit of the overhyped Cloud. The more you can run in an elastic environment that has customer-provisioned service levels, the more quickly you can scale. With the cloud, you can also scale back, which is sometimes necessary but can be difficult if you've made the upfront capital investment to run all your own enterprise services.