By Laton McCartney
David Ackerman, IT Advisory Practice leader for The Hackett Group, a global strategic advisory firm, recently talked to a gathering of corporate CIOs. Though they were from different industries, the group members had a number of things in common. "They'd done their budgets for 2009 in the 4th quarter last year, and those budgets have since changed dramatically as businesses have reforecast sales, revenue and costs," says Ackerman.
Moreover, as the recession has worsened, budgets continue to change. "They're dynamic," Ackerman notes. They've also resulted in first round budget cuts and a concerted effort to maximize the business value of IT. "At this point CIOs have gone through their project portfolio, and are really looking at the business value of each project."
Now, says Ackerman, CIOs, are canceling projects that don't bring significant business value in the short term. In fact, he notes, in many instances every project but ERP has been shelved, for the time being at least. "ERP is viewed as strategically vital, but even here businesses have reduced the complexity and customization elements of ERP projects, and they're often riding out the current version of their ERP programs and holding off on version upgrades."
In many instances, there have also been staff cutbacks, which have resulted in salary savings as well as desktop support costs, Ackerman says.
The upshot: So far so, good, Ackerman maintains. "To date companies that we deal with have cut some pockets of fat, increased productivity and possibly raised the ROI significantly."
And if budgets continue to tighten and IT is confronted with additional cuts? Ackerman says there are still some steps CIOs can take to get the most leverage from their spending. "We see more companies going to outsourcing and offshoring. They're looking at best-shore options in terms of labor costs and the quality of labor."
He cautions, though, that additional personnel cuts, especially across-the-board cuts, can be counterproductive. "If you've already cut out the fat, your staff is likely overworked. They want the company to be profitable, and likely are doing everything they can to make that happen." Moreover, with employment tight, it's not likely key people are going to jump ship, though that, of course can change, as the economy improves.
If more savings are required down the road, indiscriminate cuts in personnel or services can result in cost increases elsewhere, Ackerman warns. "Cutting costs across the board doesn't make sense." The CIO has to take the time to understand the ramifications of each component within his organization. He has to make sure that in saving a dime, he's not going to be costing the company a dollar."
However, the most important thing the CIO should be focusing on today, Ackerman says, is to align IT with business. "We've been hearing about the importance of alignment for years, but it's never been more critical than it is today. The CIO has to know what's coming and be able to make changes accordingly," he notes. "The only way to do that is through a partnership approach with the CFO and other business leaders."
Without an almost daily heads-up as to where sales, costs and revenues are going, the CIO is going to be working in a vacuum, Ackerman warns. "IT has to be synchronized with the business leaders more closely than ever before."
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