|
IT Investments in the Current Economic Situation
It’s interesting to watch how the current crisis is affecting IT. While most industries are getting hit heavily by the economic downturn, IT budgets seemed to be affected, but not as heavily as one might have thought. The main reasons for this could be:
1) Realizing significant savings from IT on such a short term is difficult. You can renegotiate supplier contracts, postpone projects, and stop hiring people, but these may compromise companies’ future competitiveness. You can also save by virtualizing your infrastructure, implementing proper processes, etc., which most companies are already doing. Still, saving significantly from IT expenditure, which represents about 5% of total operating costs, is demanding. Especially as costs are generated from a complex mix of hardware, software, people, and suppliers.
2) 95% of the operating cost is coming from outside IT, so that’s where the biggest opportunities for cost reductions are. Cutting costs while maintaining competitive advantage demands new approaches, and IT is one of the most promising tools to achieve this.
Now it seems that the tides have changed also for IT, and that IT budgets may be cut more severely. There are a couple important things to consider when cutting IT costs to reduce the risks regarding future growth and capabilities:
1) Do not focus only on cutting IT costs. Think of ways to reduce costs from the whole organization.
2) If you are spending over 50% of your budget in running current services, look for cost savings there. Are there multiple support centers that could be consolidated? Can you virtualize more of your infrastructure? Can you automate manual work that takes significant amount of time? Can you standardize hardware and software policies more in the organization?
3) If you are investing a lot and spending a lot in development projects, look for business value that those projects bring. Are the projects going to deliver the outcomes that are expected? Are project resources used wisely? Should you end some projects and direct the resources to projects that benefit more?
Taking these aspects into consideration when planning cost reductions will help prepare for the future growth. But even in these trying cost cutting times, CIO’s are still investing in innovation. In my next blog, I will analyze different ways of using innovations and new technologies for cost reductions.
|
