The "dire" outlook for the economy over the next 12 to 18 months means CIOs face tough choices in the short term, but also have an opportunity to help businesses emerge from the downturn in good shape, says market analyst firm Gartner.
But there is a mismatch of goals between the boardroom and IT. While CEOs are pressing for savings, Gartner analyst Mark McDonald says cost-cutting is only fifth on the information officers' agenda. "Even though they've been running lean since the dotcom crash, CIOs are going to have to share their colleagues' pain and make job cuts," he warns.
How CIOs can make those cuts was the dominant theme at Gartner's conference in Cannes last week.
Jeff Mann, a Gartner research vice-president, says the current situation might offer CIOs a chance to move legacy systems to modern platforms, With maintenance taking 80% or more of an IT budget, now is the best time, politically speaking, to dump legacy IT, he says.
At the same time IT directors should ask their businesses to consider lowering their service level specifcations. "Ask them if they really need 99.999% availability for its application. Show them how each nine adds 30% to the budget," says Gartner analyst Neil Rickard.
Rather than using business-grade technolgy, IT directors should consider using "good enough" technology. Giving departments the freedom to buy their own kit, including consumer equipment, can yield signifigcant savings. Gartner Fellow Steve Prentice says most workers have more and better IT at home than in the office. "Business users buy Saas on their own credit cards and use consumer software because it's easier and quicker. Maybe IT can explore whether it is good enough for the business," he says.
Garter Fellow Andy Kyte suggests that "good enough" will also work when IT needs to upgrade servers. There is no need for cutting edge. "Put Moore's Law to work. Hardware will be cheaper in six months if you can hold off that long," he says.
Gartner senior vice-president Peter Sondergaard urges IT directors to assess technologies such as multi-core processors, virtualisation, social networking and cloud computing. These have the potential to drive innovation within businesses, he says. Some could lower IT costs, while others, like social networking and virtual worlds, may lead to clever ways to attract and retain customers.
Previous downturns, including the dotcom crash, have taught IT lessons other business units can use. IT has already gone through cost-cutting exercises including rationalising applications, server consolidation, licence audits, doing more with less, outsourcing and making job cuts. This time, Gartner believes IT directors and CIOs are in a strong position to help their organistions through the downturn,
Gartner analysts Andy Kyte, Tina Nunno, Thomas Bittman, Brian Gammage and Neil Rickard gave Cannes delegates some tips on cost-cutting.
- Rationalise your applications portfolio, especially if you've been through mergers and acquisitions.
- Audit the invoices you pay you may be paying maintenance for software you no longer use or only a few people use rarely.
- Kill or defer projects that have lost their sponsor.
- Put Moore's Law to work for you: hardware will be cheaper in six months, if you can hold on.
- Use the increasing commoditisation of the industry: forget brands if the logos are not on public display.
- Buy to your own revised, downgraded specification. Do desktop PCs really need parallel ports and expansion slots?
- Let users buy and use their own mobile phones and laptops: but watch that data.
- Watch payback periods: 12 months is too long.
- Virtualise. Not to save software licence costs, but energy, rents on floor space and hardware.
- Virtualise applications. Most servers are loaded only 10% consolidating the hardware can easily quintuple the RoI on hardware.
- Consider dropping a nine. Find out if the business unit that depends on the application really needs 99.999% availability. Each 9 adds at least 30% or even an extra zero to the budget.
- See how far "good enough" can take you. IT's search for perfection is doomed, and it's foolish to chase diminishing marginal returns.
- If contracts are due for renewal, negotiate harder. Get your hardware supplier to speak to your software supplier if the latter is being difficult about licence conditions.
- Consider letting staff telework. Use the savings on office space, heating, lighting etc, to fund upgrading their home offices.
- Open-source software has its place. Software as a service may be a better option for now.
- Examine claims about the benefits of the hosted virtual desktop. Latency of information flows is a real issue, so the hype is ahead of the reality (for now).
- Develop an enterprise systems architecture that decouples input and output from processing. Segregating the business processes from the IT implementation creates agility and flexibility for both, without directly affecting either.
- Experiment with cloud computing. Your users are already doing it, but you have serious responsibilities for company data.
- Scan the market for new suppliers. Partnership is great, but everyone's hungry now.
- Co-ordinate relationships with your main vendors and negotiate from consolidated strength. Don't let them "slice and dice" your company.
Case study: How Hewlett-Packard is halving its IT budget
Hewlett-Packard is halving its IT budget from 4% of sales to 2%, but intends to retain the same or better capability. It has:
- Cut the number of active projects worldwide from 1,200 to 500
- Introduced global standards and metrics to reduce "friction" in comparing results and events in different parts of the world
- Focused on return on investment in IT
- Cut the number of software applications it supported from 5,000 to 1,500
- Slashed the number of data centres from 100 to 24
- Increased in-sourcing to retain skills and increase staff commitment
Case study: Deutsche Post
Faced with competition and privatisation, cost pressure and eroding margins, but also with the chance to become a player in the global logistics business, Deutsche Post began a seven-year project to "decouple" the business's processes from its implementation and infrastructure.
"Inserting a layer that describes the logical service architecture between the ones that describe the applications and infrastructure has proved incredibly powerful," said Alexander Scherdin, DP's senior vice-president IT architecture and quality management.
It has allowed DP to change the underlying technology and networks without affecting how business processes work, and vice-versa. This has given the firm the agility and flexibility to adjust quickly to changing market conditions. This has let it integrate the acquisition of DHL, increase revenues to more than £52bn - with half coming from outside Germany, and become the world's biggest contract logistics firm.