Saving Next Year When Cutting IT Today

By Laurie Orlov

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The financial markets have moved from shaky to hysterical. And a new survey from Forrester reports that nearly half of U.S. enterprises have cut back IT spending and nearly all have frozen discretionary spending. So it is natural now that cost cutting will, if it hasn’t already, become a corporate obsession—again. Many CIOs are already shaving, chopping, delaying and the other half are considering what to cut. But let’s be a bit more level-headed this time than we were in 2002, when an unthinking frenzy swept through the world of IT.


Let’s reminisce: remember how leading organizations responded to “Just do it” mandates and fired experienced application subject matter experts in favor of outsourcing to an apps maintenance company? Remember how companies got rid of all of the desk-side support people in favor of a world wide contract with a big and lethargic service provider; producing rage among the internal constituents? Remember how any tech R&D or emerging technologies research was eliminated (not to mention the never-hired architect or missing business systems analyst)? And think of those IT organizations that shrank down to a handful of senior people, who were then asked to fill in all the gaps left by departed staff. And while they were at it, they had keep a positive attitude and manage all the outsourcers.


Thinking Ahead


So we’re not going to repeat all of that sky-is-falling behavior this time. Maybe we’re going to be thoughtful and imagine the future before cutting in the present. And perhaps we should use a framework for thinking about cuts that could spare future misery and regrets. Rather than be specific about what to cut, place proposed cuts in this context:


How will it affect my people – morale, career future, loyalty? Companies that profess to have a “people-first” culture need to tread very carefully during cost-cutting times (as opposed to the “people-last” cultures where expectations are low that management will care about them). Remember that these tough economic times are impacting their lives outside of work, that they are eagle-eyed on how you treat their peers, that when times are good, they will look at your firm’s behavior and find a better place to work.


Can expenses be cut, but young talent preserved? The cost-cutting frenzy has often meant that a firm hires no interns, fires the last hired, junior staff, and stops talking to colleges. This is insanity and communicates to all who notice that your firm has no future. Instead, it is just another in-the-moment company and a pretty gloomy one. Execs let themselves become intimidated into cutting inexpensive talent at the bottom of the food chain.


Is the proposed domain cut operational or strategic? To cut to the chase on this one, business applications are strategic. They impact the firm’s ability to do business next year. Server, PC, network upgrades are operational. They impact how technology supports the business today. Forget that the vendor told you they aren’t going to support your aging gear if you don’t upgrade. Forget that you’ve heard that virtualization software will shrink your operations staff by 30%. Unless you know that a simple operational change will yield a significant cost reduction, cut operational expenses before strategic.


Are their greater savings by applying technology to a business area? This is where IT-exec empowerment is mandatory. Let’s say that the firm is insisting on across the board percentage cuts, including IT project and infrastructure management. Let’s say that you know a simple consolidation and shutdown of a business unit data center or aging application will save more than that IT proposed cut. Stand up and tell the CFO or the CEO. Now is the best time for IT execs to remind their boss that all that so-called alignment through business unit autonomy may be too costly.


Have your vendors weighed in with recommendations? Have you asked your vendors to come in and do a free audit and review of how you could cut expenses: cooling costs, maintenance, licenses, aging devices, or whatever? Your vendors spend their entire lives with you talking about partnership. Now is the time to ask them to put their mouths where your money is.


For outsourcing, have you factored in the management costs? Frenzied times produce knee-jerk mandates and just-do-it outsourcing has long been popular. Why are we carrying those expensive people with benefits when we could just hand off the call center to the Philippines or India? Move software development offshore? So, do you know what money you and the business constituents will spend (time, travel, telephony) in managing this “cheaper” resource? Or are you doing hourly wage comparisons that represent only a piece of the puzzle?


My hope is that everyone already uses this framework for making decisions. But just in case, take a deep breath before cutting into your future.


Now an independent consultant, Laurie M. Orlov is a long time practitioner and industry observer. She has over 33 years of IT experience, the last 9 years as a VP and principal analyst, research director and consultant at Forrester Research. Prior to joining Forrester, Laurie held senior IT management positions in various high-tech companies, most recently as a CIO, driving the implementation of eCommerce-based ERP solutions for a mid-market PC reseller.