Recessions don't last forever and businesses that cut back on IT
indescriminantly are likely to be at competitive disadvantage in
the future.
According to research from business consultancy Deloitte, 84% of
cost cutting is being driven from outside the IT department by
executives who have little understanding of the potential savings
and the associated risks.
The research, based on interviews with 60 large businesses and
public sector organisations, found that 70% of businesses and
government departments are cutting IT costs, with another 10%
planning to do so.
A total of 75% of these organisations are prepared to delay or
cancel projects, 67% will increase their reliance on out-of-date
infrastructure and more than half plan
swingeing cuts to IT staff.
But businesses that rely on older equipment and reduce IT staff
are increasing the likelihood of system failures and reducing their
ability to respond to failures.
"Businesses are sweating assets and some are going even further
by deliberately reducing the level of resilience and disaster
recovery in their IT systems," says Neville Howard, partner at
Deloitte. "If you compound these two factors, an organisation could
be more likely to experience a major systems failure, and less able
to respond to it."
Relying on out-of-date systems leads to problems today, while
cutting back on staff will make life difficult in the future," says
Howard.
"Resourcing the wave of projects that will result could be a
real issue for organisations that have cut too deeply into their
permanent staff, particularly as they will then be competing with
other organisations for what could be scarce skills," he says.
Another area where businesses are cutting costs is in
renegotiation contract prices, says Howard. This can bring
hidden costs.
According to a survey published by PA Consulting last week,
two-thirds of the companies surveyed said they were going to
renegotiate existing outsourcing contracts.
Graham Beck, senior sourcing advisor at
PA Consulting says
cost-cutting is being done "almost to the detriment of anything
else".
He says there are hidden costs associated with any process to
re-tender contracts. "Having to direct your resources into creating
a competition and chose a supplier will divert resources away from
the front line."
Beck adds that the trend to use multi-sourcing strategies to
lower costs through suppliers competing for projects can also cause
difficulties in the future.
"This is ok if you break your service requirements up. But there
could be trouble again in the future when the customer has to stick
them back together again."
Howard says CIOs must go to the board with ideas about how the
business can cut IT costs. This, he says, is better than "waiting
for the CFO or COO to pass down an arbitrary cost-reduction
target".
Businesses have to cut costs and IT often makes up a large
proportion of operating costs. But this does not have to be at the
expense of performance today and tomorrow if IT and business work
closely to agree where cuts could be best made.