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CIOs 'must be prepared to halve budgets'

Ian Grant

CIOs will be asked to cut their budgets by 20% to 50% over the next 12 to 18 months,delegates at the Gartner Symposium in Cannes have been told.

See our full coverage of Gartner 2008 including a live blog

CIOs should prepare themselves for searching questions on what they intended to do to increase IT productivity, the analyst firm warned.

Gartner analyst Jorge Lopez said CEOs and CIOs were reluctant to admit they were cutting costs, because they feared this would hurt their share price or reduce their ability to attract IT talent.

"But once we've signed non-dislosure agreements, they all ask us how to cut costs, and what are the others doing to cut costs," he said.

Lopez said IT spending lagged events by a year. This was because 80% of the budget was devoted to maintaining existing systems, to "keeping the lights on", he said.

This was not a bad thing, he said. "Innovation happens because of crises. Most of us could cope with a demand for a 10% budget cut, but 20% or 50% means looking differently at how you do IT," he said.

IT productivity was the next source of competitive adavantage, he said. The challenge was not to cut costs blindly, but nevertheless to optimise spending. "If you cut too much or in the wrong place you can't deliver," he said. "You have to find new ways to do things."

He said, "If you (the CIO) don't understand the link between IT and the business, it's time you did."

He suggested changing the benchmark metric from IT budget as a percentage of sales to sales per IT headcount to reveal IT productivity in relation to company activity.

"You need to ask whether the requested cost-cutting is game-changing or just gaming," he said. "If it's the former, then just do it."

HP cuts IT spending to become leaner and meaner

Hewlett-Packard, is one of the few companies to go public with its IT cost-cutting plans. HP has decided to halve its IT budget from 4% of sales to 2%,, but wants to retain the same or better capability, said Gartner analyst Jorge Lopez.

Lopez said HP had:

- 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.

The result was a leaner, meaner corporation that was better able to preserve cash, negotiate harder, invest more and move into promising new markets than its competitors, he said


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