Saving IT in a Recession
If this recession turns out to be like the one we came out of just a few years ago, then IT is going to be cutting back a lot, again. Since most companies still view IT as a cost center; something lumped in with other G&A expenses such as finance and HR, it's only logical for the CFO to show up asking for across the board savings of say, 10 to 15%.
Once this happens, the question becomes, how are you going to do this without cutting vital services and completely quashing important projects?
Well, there are ways.
According to a recent Hackett Group paper, this may actually be a good time to make some needed changes around your IT shop. Changes that may seem a bit Draconian up front (especially to those they affect the most) but, in the long run, will position your company to be first out of the gate when things turn around, said Erik Dorr, Hackett's senior research director. The Hackett Group spends its time benchmarking and analyzing how world-class companies do what they do and why it is effective.
But, before you start lopping headcount, first look at the demand management. How can you better manage the resources needed to support existing operations, asked Dorr. "IT always has to juggle those demands and make those tradeoffs. We believe there's a substantial opportunity in demand management that a lot of organizations have not fully exploited."
You can start with this idea by utilizing asset management tools to see what exactly you are supporting (and why); using license management tools to make sure you are not overpaying for software licenses no one is using; taking a portfolio approach to your applications and looking at your support level for certain less-than-critical applicationscut back there, focus only on mission critical applications.
If you can find applications, for example, that are expensive to support but provide little or no benefit to the overall business, or are used by fewer and fewer people, retire them or replace them with less costly alternatives.
"That's really an analytical process and a level of sophistication that companies need to get to to take their demand management to the next level," said Dorr. "And, again, we've seen companies being extremely successful by cutting substantial support costs by tailoring the level of support to the level of business criticality of the applications."
You can also save money by better controlling end user computing: PDAs, wireless subscriptions, laptops, PCs, etc. all cost money to support, buy, and replace. Look at who really needs what and get rid of the units you don't absolutely have to support.
Sourcing is another, tried and true area where saving can be achieved, said Dorr. Send more development work outside of the company. This will allow you to reduce headcount without hurting important projects and will also give more freedom to kill projects since you won't have to worry about firing anyone because of it.
Look to your peers. World class efficient companies is the group you want to emulatenot world class IT companies since these firms often out-spend their peers group on IT. World class efficient companies are lean and mean, typically under spending their peers by a substantial margin, said Dorr.
But, if you do decide to emulate world class efficient IT expect some serious fallout because you will be cutting back pretty substantially in the short term; canceling projects, laying off personnel, supplying only mission critical IT. You will probably not be very popular outside of the CFO's office.
"In terms of value you are going to overshoot," he said. "You are going to be operating at a sub-optimal level, however you will set yourself up when things come back up to quickly establish that optimal spend level because you are operating an efficient operation."
Really this is all about managing your IT shop in the leanest way possible without cutting business servicessomething most CIOs try to do day in and day out anyway. What's different now is the recession (or threat of one anyway). That increases the imperative to make good on the promise that IT can and will run better, leaner while still providing the support the business needs to operate efficiently.
According to the report:
Strategies for driving out inefficiencies include such tried-and-true best practices as reducing architectural and organizational complexity. World-class companies have highly consolidated technology platforms and application landscapes, as well as consolidated data centers.
Demand management and supplier management are also key to reigning in technology cost. The latter can be achieved by negotiating flexible contracts that allow the organization to scale its license fees, infrastructure and networking up and down as swings in demand occur, for substantial technology cost savings.
Finally, demand aggregation, vendor consolidation and vendor management all practices that originated within the procurement discipline are highly effective at driving down technology costs. In summary, the keys to technology cost savings are architecture complexity management, centralization, demand management and sourcing.
Then there are all sorts of technology solutions that vendors may begin pushing harder and harder as ways to save IT money. But, be wary, cautions Dorr. Many of these technologies, while good (think virtualization) really do not help you save anything in the long run because they are aimed at providing you with additional capacity at lower or no extra cost.
Since IT is usually a little behind in providing the business with everything it wants, this "excess" capacity then simply gets used up. "I think there are just a lot of technology enabled silver bullets that are a lot of vendor hype and push," said Dorr.
At the end of the day, it's good management practices and decisive decision making that saves the most money.