Information Technology is only a small portion of corporate costs and since the last recession it has become cheaper but more embedded in the business.
A general prescription to “cut discretionary IT spend” across the company is perhaps unwise (if understandable). It’s much better to take a careful look at the IT portfolio and cut the least attractive elements, rather than decelerate or stop sound IT investments that could yield value quickly.
The good mixes with the bad
Since the dot.com bust IT is leaner and meaner; user demand is better managed, systems portfolios have been rationalised, infrastructure costs reduced and made variable, while suppliers have been consolidated and some work has shifted offshore. However, differing demands from the business on IT have led to over-engineering, duplication and waste. Where this has occurred, perhaps as a legacy of reorganisations and merger/de-mergers, it should be cut to help meet corporate cost targets. However, stopping sound IT investments can be a false economy, especially during a downturn, when all contributions to the bottom line are welcome.
Find the levers
Technology now integrates more tightly with business activity. Many IT investments can improve short to medium term profitability more than IT cuts. For example, focused IT investments can have a substantial business impact, improving supply chain efficiency, reducing customer service costs and improving support functions.
Poor practices often get built into systems, which depresses efficiency. In a downturn, smart firms identify a few IT enabled activities and then improve them by inexpensive, quick tactical systems changes; this often yields big returns and better business practices. We have a couple of examples.
A large manufacturing firm experienced a serious interruption in their supply chain planning process; occasionally a logistics supplier was not able to fulfil a delivery which in turn put a complex customer call-off at risk. The planner had to find a substitute quickly or risk serious customer dissatisfaction. Using an inexpensive collaboration tool the process of recovery has been made much less painful. The planner now contacts a shortlist of alternatives and asks for availability. He pulls in the various call-offs and availability into a ‘situational application’ and sets up a conference call with customer account managers. During the call they can access all the information they need to select a new supplier, preserving the customer delivery schedule.
Data in disparate IT systems can also be analysed to enable better decisions – so in a downturn smart firms integrate critical information using inexpensive collaborative software rather than build complex new systems
An energy company regularly experienced time consuming rework in the annual budgeting process due to the mobile work patterns of the contributors. They used the dormant collaboration abilities of the existing core finance system to change the way the process was conducted. Now, a business unit finance manager and analyst initiate the annual budgeting process by creating a ‘collaboration room’ in the core system. Contributors are given planning tasks by the analyst, along with, Excel and Google Office and core system templates. The business analyst, working from home, can accesses the core system through the web, and using a situational application, aggregate the data from templates into the core system. Based on the result scenarios are adjusted and resubmissions requested. Travelling contributors’ progress can be checked via the core system and reminders sent automatically (email and SMS). The trial budget summary is then sent to wider management.
There’s more than one way to skin a cat
Downturns force the issue of value for money, everywhere, and IT is clearly not excluded. This forces companies to review, justify or reallocate funding of their IT portfolio to preserve critical business priorities, but it is also a chance to save more costs than those deriving from blanket IT cost reductions.
Click here for some specific examples of cost saving opportunities.