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By Laton McCartney
Here's the problem according to recent study of 80 global companies by the Hackett Group, the strategic advisory firm: IT budgets and staffing levels are expected to remain nearly flat over the next few years, in large part due to the global economic downturn. But—and it's a big but—demand for IT services will increase by more than 17%.
The upshot, says Erik Dorr, Hackett's senior research director, is a significant gap that organizations will need to address with improved efficiency and productivity.
Of course, today that's often easier said then done. Hackett, however, asserts that organizations which deploy a full array of strategies can bridge that gap. Specifically, these strategies include discretionary cuts; IT demand management strategies and IT cost control strategies.
Unfortunately, some companies are at the point where they have made about all the discretionary cuts possible, at least in terms of their infrastructure. Hackett's IT Practice Leader David Ackerman says the company has one client that's cancelled every pending project except a strategic ERP effort. "In a number of cases, companies that had maybe ten projects in the January budget are down to about two," he notes.
That leaves demand management and cost control strategies. The former, says Dorr, "is a set of specific techniques aimed at prioritizing IT services and balancing supply and demand." These include portfolio management—basically a set of processes aimed a rationalizing IT investment decisions. Here the CIO and in many instances an IT investment committee evaluate and compare IT investment options on the basis of objective criteria—and within the framework of a strict governance policy. Some autocratic CIOs may make these decisions unilaterally, but the smart ones will confer with an investment committee before making a move, Ackerman says.
Another technique that comes into play as part of demand management is so-called chargebacks/ IT cost allocations. This works as a long term strategy, but isn't really viable in today's economic climate where short term payback is vital. "Short term you're just pushing money around," Dorr explains.
Some companies also employ so-called service catalogs, a process that defines a set of discrete service offerings with associate price per unit and level of service—such as gold, silver—that IT wants to provide users. The idea here is to control IT-demands through a price-based feedback loop to the user of IT services. Of these three approaches, portfolio management is the most widely used and most effective, Hackett asserts.
Finally, there are IT cost control strategies such as outsourcing/offshoring and IT reorganization which include establishing shared services, competency centers, elimination of management layers, consolidation of IT departments and changes in reporting lines, among other concepts. Ackerman says that today many companies are moving to Software as a Service (SaaS) and cloud computing which enable them greater flexibility in providing IT services.
Based on its study, Hackett says the companies polled project a future 11.2% saving relative to baseline cost from outsourcing/offshoring; 8 % from reorganization and 10% from supplier/contract management which essentially renegotiating vendor contract.
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