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Tough times call for tough decisions, and in this difficult economic period, it's up to the CIO to determine where to cut the IT budget without sacrificing effectiveness and efficiency. So say Eric Dorr and David Ackerman. Dorr is senior IT research director and Ackerman serves as IT practice leader, both with the Miami-based, Hackett Group, a global strategic advisory firm.
"In the current economic downturn CIOs can fully expect the CFO to come calling and ask them to reduce IT spending to align with business volume," says Dorr. Additionally, he notes, during a downturn, IT is often expected to contribute more than its proportionate share of the downward adjustment of revenue. As a result, although a company may have planned to grow revenue and IT spend by 10%, when growth projections are readjusted to zero, IT may have to cut back by more than 10%. "The IT budget is often seen as more discretionary than other costs and consequently the IT department may have to make deeper cuts so the company can protect its margins," Dorr says.
"The dilemma for the CIO is where to make those cuts while minimizing impact on business value delivery," adds Ackermann.
He and Dorr have targeted the highest potential IT processes for savings - processes that, when combined, typically account for 87% of total IT process costs. They are:
1. Infrastructure Management.
This is operational IT processes that in most enterprise represent some easy picking for cost-savings initiative. How to accomplish this? "Start by reducing complexity." Dorr advises. "As an example, a company may allow 25 coexisting desktops and two or three different operating systems," says Dorr. "This means whenever there's a problem, the help desk must determine how to deal with the different desktop computers experiencing difficulties and/or the different operating systems. That costs time and money. If everyone is on the same kind of desktop computer and operating system, those costs go away. By standardizing the infrastructure and reducing complexities, you can generate significant savings."
Adds Ackerman, "Say you've got a small group of Apple users within the company or some users on an Oracle database platform and others on a Microsoft platform." That kind of complexity represents a luxury companies can't afford in a recession. "If you standardize, you're no longer trouble shooting multiple computers or database platforms."
Surprisingly, Ackerman and Dorr advise against outsourcing as a means of cost cutting here. "Keeping the process in-house and driving continuous improvement yields higher efficiencies than outsourcing," Dorr says.
2. End-User Support.
Here a cost saving of up to 40 percent is possible, Ackerman and Door say. How? With infrastructure management, the efficiency of end user support is largely a function of process maturity - as reflected in adoption of ITIL [ The Information Technology Infrastructure Library , is a set of concepts and techniques for managing information technology (IT) infrastructure] type processes such as problem management and service desks, Ackermann and Door explain. Other efficiency strategies include help-desk consolidations, which yields substantial economies of scale, and reduction of complexity of the architecture that is being supported. Typically, Dorr and Ackerman say, end user support, infrastructure management, application process costs and technology cost will move in tandem.
3. Application Maintenance.
Reduced complexity of the applications portfolio and a more disciplined approach to applications disposition planning are critical to reducing overhead here. One large headache, says Dorr, are legacy applications that users are not willing to give up. "What happens, often," says Dorr, "is that companies implement new ERP systems without looking or changing the business processes and not decommissioning legacy applications as well."
To wean users off legacy software, and overcome pushback, the CIO needs strong support from on high—the CFO, or better, the CEO. "If the CIO is isolated in pursing this initiative, it's not going to happen," Ackermann says. Also needed: here: rigorous processes to qualify and prioritize maintenance requests.