Important New Research: IT Innovators Beating Recession, Pulling Ahead of Competitors

Businesses that continue to invest in IT are better positioned to weather the economic downturn, and will be better equipped to capitalize on any future economic recovery, according to a new survey of 300 European enterprise IT decision makers and research from the London School of Economics (LSE).

Results of the 2009 European IT Survey1, sponsored by BMC Software (NYSE:BMC), reveal that one in four companies – the Thrivers -- are beating the recession by focusing on improving their IT organization’s operational efficiency and reinvesting those cost savings into strategic IT projects that drive new business. Many of the surveyed CIOs highlighted their belief that sustained IT investment is strongly linked to overall business performance.

The survey also reflected interesting differences between the approaches to IT investment and innovation in the three countries. For example, German companies are the most consistent in their approach to innovation. They typically spend 24 percent of their IT budgets on innovation with a drop in spend of only 8 percent on average. In comparison, French companies are the most cautious; with innovation spend decreasing by 17 percent in the downturn. The UK has the most enthusiastic sentiment towards innovation, with 67 percent prioritizing innovation and 77 percent innovating in good and bad times.

“The lesson we can draw here is that companies cannot simply save their way back to recovery,” said Dr. Alexander Grous of the Centre for Economic Performance (CEP) at the London School of Economics, who has studied the link between IT investment and business performance extensively. “Innovation deficits are extremely hard to redress. Organizations that recover best are those investing in areas of the business that can deliver long-term returns — areas such as IT.”

Key findings of the survey:

Consistent IT investment continues to deliver positive impact to business performance, according to the CIOs surveyed.
The 25 percent of companies categorized as Thrivers see the recession as a real opportunity.
60 percent state that investment in new technology drives business performance.
More than a year into the downturn, 77 percent of companies are already realising cost savings from IT.
64 percent recognise that IT investment can drive down costs in other parts of the business.
60 percent of companies that have realised cost savings are reinvesting in strategic IT projects.

Additional joint research by the LSE and global consultancy McKinsey showed that firms which combine strong, sustained IT investment with good management practices achieved superior bottom line performance in terms of productivity, profitability and sales growth.

“The message is really very simple,” continued Dr. Grous. “Good management practices will maximize the benefits and advantages of smart IT investment. ‘Cutting muscle’ to save costs in key innovation-enhancing areas such as IT can kill a company in this environment. Put another way, becoming ‘skeletal’ to try and get through a recession means that you might not have the strength to make it out. If you do make it out, you may not have what’s necessary to take on the smart players who got it right.”

Despite increasing evidence of a fundamental link between IT spending and innovation, good practices and business success - IT investment in has dropped by 11 percent overall across all firms. A contributing factor could be that in more than half of companies surveyed, decisions about IT cost cutting are made outside the IT departments.

The survey identified three types of companies – Thrivers, Survivors and Hiders – each with a different approach to the recession.

Twenty-five percent of the surveyed companies reported taking a proactive approach, clearly marking themselves as Thrivers. These companies have a greater focus on IT automation as a route to cost cutting (41 percent versus 22 percent of ‘survivors’) while only reducing innovation spend by 0.5 percent overall. They also reinvest IT savings to further enhance business efficiency.

"Virgin Media prides itself on innovation," said Matt Wills, Build and Environment Manager for Virgin Mobile, a clear example of a Thriver. “Indeed, we've got as reputation for it as the first company in the UK to offer customers TV, Broadband, Phone and Mobile all from one place.”

“The same goes for Virgin’s IT. We believe that automated release and configuration management is vital to an IT department's success,” Wills continued. “Automation software has provided us with a framework to organise, manage and automate our ever-increasing server and application estate, saving us hundreds of man hours each year. We can get new products to market quicker, which is hugely beneficial to Virgin and our customers.”

In fact, Thrivers are twice as likely to go for fast ROI and reinvest cost savings into IT innovation and efficiency. Choosing to see the recession as an active opportunity, these companies are highly motivated in the face of adversity and respond more acutely to the challenging environment. And there’s a particularly interesting statistic on Thrivers: while 52 percent of them say they have been directly impacted by the recession, only 28 percent say this has resulted in a decrease in sales.

Specifically regarding IT investment, ‘Thriver’ companies are more assertive and tend to concentrate on projects that deliver rapid returns, with 35 percent focusing on reducing infrastructure complexity and 46 percent rationalizing IT operations. This forward-looking group is twice as likely to reinvest these cost savings into continuing IT efficiencies to enable them to thrive during the period of economic recovery.

Thrivers are twice as likely to pursue automation of IT processes with 41 percent having invested in automation as an innovative approach to reduce costs, compared to only 22 percent of reactive business and 37 percent of businesses not recognizing its potential. In addition, 76 percent are planning to look to innovations such as virtualization as a means to improve efficiencies in the next 18 months.

Many companies, however, are battening down the hatches and focusing on being a Survivor. Making up approximately one-third of the survey, these companies are in crisis mode, reacting to conditions with short-term cost-cutting and trying to make it out of the recession alive. Based on the survey data, these companies are much more likely to reduce the critical application infrastructure (23 percent against 13 percent of other respondents) that will be necessary for future success. In a Survivor company, decision makers also tend to be more detached from the heartbeat of their business, with only 56 percent in frequent contact with their end-user customers.

Lastly, there are the Hiders, the companies who have not yet begun to deal with the impact of the recession on their business. More than 40 percent of surveyed companies have adopted this posture. CIOs working in these companies are much less likely to streamline their IT operations, with only 28 percent compared to 38 percent of other respondents. They also have fundamentally lower expectations about their IT organization’s ability to help other parts of the business to drive down costs (58 percent versus 68 percent of other businesses).

Luca Lazzaron, BMC’s vice president and general manager for EMEA, said: “Many BMC Software customers are enjoying huge cost savings on an annual basis thanks to innovation. Companies that thrive – both in this environment and in future ones -- appreciate the transformative potential of IT and they maintain a strong, consistent investment. Those that take an overly cautious approach to IT investment invite a new cycle of economic hardship at the hands of their competitors.”

Business runs on IT. IT runs on BMC Software.

The most demanding IT organizations in the world rely on BMC Software across both distributed and mainframe environments. Recognized as the leader in Business Service Management, BMC’s comprehensive approach and unified platform help IT organizations cut costs, reduce risk and drive business profit. For the four fiscal quarters ended June 30, 2009, BMC revenue was approximately $1.88 billion. Visit BMC.com for more information.

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1 Survey was conducted by Loudhouse between June – July 2009. Research was across UK, France and Germany and interviewed 100 CIOs per country in companies with an average turnover in excess of €2 billion.

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