With corporate profits and Wall Street returns at historic highs, economists are calling for more trickle down. We don’t live in a trickle-down tax system, but the principle should nonetheless apply: Higher corporate profits should lead to more business spending and an indirect redistribution of wealth in the broader economy.
But despite sterling business results, corporations are spending significantly less on big-ticket items like machinery and technology than the average for the past fifty years, according to the WSJ’s Justin Lahart. Equipment spending represents just 5.2 percent of U.S. GDP over the past five years, compared to 6.5 percent over the previous 50 years. That’s a huge difference, and one that chief information officers can—and should—do something about.
The NYT’s Neil Irwin argues that it’s time for corporate chieftains to close that gap. “If firms increased their spending enough to close that gap, it would mean an extra $220 billion in annual economic activity and perhaps a couple of million more jobs,” he writes.
His proposed solution: more spending on construction equipment and “expensive new software packages[s] that make your sales force log more calls to the right people.”
But CIOs and other IT leaders know that the budget pendulum rarely swings back to historic levels. Most years, they’re happy with flat budgets. In recent years, they’ve nonetheless been able to innovate thanks to the advent of cloud computing and the wonderful, stubborn persistence of Moore’s Law, which has correctly predicted the steady decline in processing costs over time.
But change costs money—even change meant to save money over time. Whether CIOs are considering a move to cloud computing to save on capital expenditures, or adopting analytic systems to improve employee productivity or help discover new revenue streams, new investments often require them to find offsetting cost savings elsewhere. It’s about turning the dial on the outdated 80/20 rule, where 80 percent of IT spending goes to system maintenance and support and only 20 percent to new capabilities.
There is a new wrinkle, however. CIOs are finding unlikely allies in the marketing department, where chief marketing officers crave new data, but want nothing to do with actually managing technology systems.
Paradoxically, CMO spending on technology has increased, but their frustration with technology hasn’t lessened in kind. They’re discovering that vendor negotiations are a fine art, that creating new data silos doesn’t generate new insights, and that IT departments are even slower to help troubleshoot issues when they didn’t buy the systems to begin with.
And in many cases, CMOs have budget set-asides (aka slush funds) into which they can dip to fund projects CIOs can’t. Developing internal alliances with line of business executives can help IT find dollars to fund innovative new projects, as well as business partners willing to help argue for more investment when needed.
And as those investments create new wealth, perhaps we’ll finally start to see a reversion to the economic mean, greater job gains and higher average salaries, and what Mr. Irwin calls a “virtuous cycle of more economic activity, more jobs and higher productivity growth.”
Michael Hickins is a director of strategic communications at
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