One of the outcomes from the changing economic circumstances faced across the globe is the need to scale down on costs across the corporation. Improvements to business effectiveness are more important than ever before, so change must go on and IT projects still need to be delivered. In a recent article (click here) I indicated that the role of the Chief Information Officer (CIO) has changed forever. They have largely become the Chief Change Officer by leading their organization’s strategic business change initiatives (please remember change in this context does not necessarily mean changing IT systems)
The CEO and corporate leadership is interested in how IT is kept relevant and cost efficient.
Some approaches that may be considered in respect of managing cost reduction include:
• Leveraging a positive economic justification
• Centralisation of services
• Server virtualization
• Cut staffing levels or broadening job responsibilities
• Outsourcing support of development activities
• Find new vendors
• Retain old equipment for longer period
• Minimise maintenance costs
• Implement Open Source solutions, or Software as a Service (SaaS)
Technology must not be seen as a “necessary evil” in the eyes of the business owner, it is a key enabler and should always add value and it is the CIO’s job to ensure it does. There must be a positive economic justification to go ahead with any project (even more so in a tight economy), yet the average CIO has between 3 and 5 years worth of change pencilled into his calendar already. Today every business is seeking a greater return on their technological investments.
If ever there was a time when Business Intelligence solutions were important it is right now! Knowing how your corporation is performing when compared the overall market position is vital for continued success and is one area where IT can contribute to positive growth. Don’t cancel any ongoing BI projects, they can save your company! Most large corporations already leverage BI to some extent, Now it is important to focus on those measures that add value to the corporation. The executive and board need to be aware of how much value this can add to the bottom line.
With every project is important to identify a return on investment, and many corporations seek a positive return during the first full year of operation, which is often un-realistic. In tough time it is necessary to stretch projects out, for example making a commitment to deliver only one major project this year may be the best way to leverage the budget. Work on other projects continues, but the staff compliment has been trimmed, and external contractors are no longer involved.
Software applications should empower the business to make effective improvements in service or efficiency. Budget holders need to have a clear picture of spending and expected benefits. ROI is a term that has to some extent gone out of vogue and needs to be re-learnt by the CIO. When any system is implemented there must a clear benefit to be made ROI has to take the complete current state into consideration. Before the project commences this must be based on the status quo. As the project proceeds this should build on the activity of earlier project work. Organisations can realise an ROI through a number of avenues, including:
• Efficiency savings due to the automation of data and processes.
• Identifiable business savings, e.g. the ability to scale-down facilities.
• The value of new customers
• The value of market share
• Reduction in the cost of raw materials
• The value of efficiency or business savings identified
• Reduction in software or hardware maintenance fees
The current period demands a faster return to a positive ROI. The ability to measure a positive impact of any spending is one of the benefits good Business Intelligence brings.
In my experience few big-budget solutions pass the test even in good times, but many development projects have forgotten how to deliver business value. Few CIO’s are prepared to push back against vendor cost estimates. Most projects can have their costs trimmed by as much as 40% by smart management of the software implementation. It is rare that all features are required at once. Additionally there are savings to be made in respect of the hardware implementation.
Certainly there is a fresh opportunity to implement Open Source solutions at a fraction of the cost for normal commercial applications. Open Source applications are now able to compete directly with commercial solutions in terms of capability and are thus becoming viable options, certainly for smaller companies. Even the more sceptical IT managers realise these solutions are now being widely accepted.
This may come about by implementing a small specialist solution. However it is important to remember that expert assistance is still likely to be required during certain implementations. The risks of implementation must be clearly identified, including the prospect of supplier failure.
Software as a Service vendors will argue that massive cost savings can be made with adoption of their solutions. It is true there is potential for savings here as there is no requirement for in-house servers in order to support such solutions. With a raft of solutions available including CRM, Marketing, eCommerce this seems like an attractive proposition at first glance, especially as the costs are calculated on a per seat per month basis.
However the corporation must consider the legal implications of implementing SaaS as part of their application set. Questions such as “who owns the data?”, “how do we guarantee statutory reporting compliance rules are adhered to?”, “what is the impact of privacy law?” all need to be considered in addition to standard vendor viability questions that must be asked of any software vendor.
The last word on SaaS is that we need to be mindful that such solutions are NOT currently mainstream IT technology. Whilst they may be in-vogue but they still have a rocky-road to travel before the technology is fully accepted into the mainstream. In that process many vendors will crash and burn, including leading ones available today.
Of course there is more to IT than the implementation of software solutions. Others areas will attract demands for cutbacks, including equipment and staffing.
In making departmental cutbacks the simplistic approach is to cut staffing levels across the board, but that raises the question of which roles need to be cut. This is the one option that is always hardest to carry out as there are hundreds of reasons why any staff individual member is valuable to the organisation. It can be argued that by focusing on IT operational excellence, you can drive the highest levels of system performance, availability while lowering the costs of maintenance. However the excellence and value any individual staff member brings to the team hardly matter when faced with the demand to cut 10% of the workforce especially when no individual falls beneath the expected level of excellence.
Centralisation of services can bring efficiencies, the main impact being through the use of centralised services and data centres. In looking for savings it is important to remember that equipment (PC’s, Printers, etc.) still needs to be maintained at each location. Outsourcing or off-shoring of support can also bring additional savings, but future cost rises must be limited by contract. Further staffing efficiencies may be facilitated by broadening job responsibilities across the team, for example the CRM specialist may need to take on responsibility for Supply Chain solutions. Certainly some savings can be found here but there is a risk that key knowledge is lost.
Server virtualization can provide a cost reduction through a better utilisation of the IT infrastructure, which will also bring reductions within the maintenance and support budgets. However I am convinced that unless the organization has some virtualization is already active a new enterprise-wide deployment would bring added risk and should be left for another time. Extending an existing virtualized architecture can bring cost benefits in server and storage costs.
Finding new vendors may increase the risk but it may reduce costs. Early in 2009 JP Morgan-Chase went to many outsourced services vendors and asked them to drop rates or find other people. This method may be a bit blunt but it can be an effective way of reducing costs in the short term. I do think that the risks associated with such a move do have to be fully assessed and may result in additional expense in the long term. It is important not to let short term demands cripple your long-term strategy in these areas.
Retention of old equipment is an easy cost saving to identify. Keeping PC’s for 5 years instead of 3 is the first of these cost savings measures that can be made. For the majority of users older kit is still more than capable of doing the job, it is only the power users that need the most modern machines, which are later recycled into the rest of the business. Here is where the argument for green computing falls flat in the current era, as the company can realise immediate savings, unless a replacement is required. The other area to consider is the number of printers. Do we need one for every 10 desks? Can we make it one for every 15 desks? After all we are all printing less these days than we used to and we should encourage less printing from a cost management perspective.
On the budget front one Silicon Valley CEO recently told me his company is just simply stretching out their resources and waiting on next years budget. Communicating bad news is never easy, but must be done in a clear consistent manner. We still have IT projects to deliver, but we have to do this with less resources. It is important that the CIO sets reasonable expectations and delivers on promises. The excessive multi-year projects are the very ones that will need a full justification, including a rapid return on investment.
Leadership in a recession requires strong prioritisation. The 80-20 rule applies so it is essential to know how to identify the diminishing returns and know when to stop. Practical solutions are needed, not perfection (that can come at a later phase). Results, i.e. the ability to deliver, are all important at this time. The ability of staff to deliver under pressure is also an important factor.
Tags: Cost Effectiveness