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By Laton McCartney

In hard times, CIOs can expect a visit from their company's CFO asking them to slash IT budgets. In meeting these demands, the major challenge for the CIO is to make tough calls as to where to make cuts while minimizing the impact on business value, says The Hackett Group, the Atlanta-based strategic advisory firm.

Hackett advises members of its Executive Advisory Program, to start the cost-cutting procedures by going after the high potential IT processes (infrastructure management; end-user support; application maintenance; application development and implementation; and functional management and administration.) Collectively, these represent 87% of total IT process costs. "Optimizing performance in these areas, combined with selective lifting and shifting of IT processes, can yield in the order on 30% baseline process cost savings," say Erik Dorr and Michel Janssen, co-authors of a Hackett report on IT cost cutting.

Here are four tips for the CIO seeking to reduce overhead without sacrificing business value:

1. Make the right call on infrastructure management. Hackett's research indicates that costs savings here in excess of 50% can be realized by closing the gap to world-class efficiency levels (what Hackett defines as companies with world-class IT organizations—IT operations that achieve peak efficiencies and effectiveness). In other words, infrastructure management represents the low hanging fruit in terms of making cost cutting moves. Typically, though, many companies try to achieve this through outsourcing. Hackett data, however, shows that world-class efficiency organizations outsource less (29% against 38%, respectively) compared to non world-class organizations. The bottom line: Keeping this process in-house and driving continuous improvement yields higher efficiencies than outsourcing. To do this, however, it's necessary to reduce the complexity of the architecture being managed. Otherwise, you'll have to dedicate scarce resources to low value-added infrastructure management work. The less complex the architecture the fewer resources you'll need to manage the process.

2. Deliver less costly end-user support. Hackett says you can deliver top quality end-user support levels while achieving cost sayings of up to 40%. To do this you need to adopt Information Technology Information Library-type processes, such as problem management and service desks. (ITIL is a set of concepts and policies for managing IT infrastructure.) Also consider help-desk consolidation, which Hackett says can yield substantial economies of scale.

3. Loose the legacy apps. Hackett says that one of the major differences between world-class corporations and run-of-the- mill organizations is the extent to which the top businesses reduce the complexity of their application portfolios. As a result, they can operate at a 41% lower cost than non world-class companies. The first step in eliminating complexity—decommission legacy apps after new systems have been rolled out. Also establish and maintain rigorous processes and prioritize maintenance requests.

4. Go easy on apps development. Quick savings can be realized by cutting back on application development, right? Maybe so, but Hackett warns that a failure to upgrade and replace legacy apps can result in higher, offsetting maintenance costs. Net result: You may not end up saving a proverbial dime. Also, Hackett warns against going the service oriented architecture (SOA) route if you're looking to lower developmental spending. Hackett's research indicates using the SOA software development framework may deliver substantial business benefits but lowering process costs isn't one of them.

Comments (1)

	1. 10-31-2008 15:38
	This is a great article, but cutting staff and outsourcing can also cost the company a lot more if the cards don't play out right. Seen it happen in more complex environments.    I would suggest adding another cost cutting method on here. Review all your IT operations services in cross departmental.    1. Telephone services in all locations.  2. Datacenter's  3. Internet Connectivities in all locations.  4. SaaS CRM if not hosted internally.  5. Applications  6. Support contracts  7. Software licensing and agreements.  8. Asset management  9. Purchases vs. inventory    There are so many ways to cut IT costs, possibly by combining responsbilities and assigning IT staff for outsourcing responsibilities by slashing external budgets by 30%.    Local IT outsource costs an average of $150.00 hourly, a Sr. IT Engineer averages $80.00 hourly to include all benefits. Their skills, may be different, but a Sr. IT engineer has the capabilities to learn cross functional skills 50% faster. Guest

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