IT cost cutting redolent of self harm

Organisations that are cutting savagely into their IT are presenting an ugly spectacle of self-harm. They may think that they are beating the recession by slicing the fat off a mere support activity, but they are putting their capabilities to compete, and even survive, at risk.

Deloitte says that 84% of the current wave of IT cost cutting is being driven by non-IT business executives who have little understanding of the risks they are running. Businesses, one source tells us, are not just sweating assets, but are reducing the level of resilience and disaster recovery in their IT systems. Not the smartest move to make on the verge of a flu pandemic! Some organisations are also intent on renegotiating outsourcing contracts in a manner and to a degree that will most probably damage long-term supplier relationships.

Why do business executives continue to relegate IT to the status of a support activity? Granted much of it is, but, as the SABMiller case study in this issue demonstrates, IT also generates business value – or money, to put it more plainly. The $24bn global brewer is revamping its supply chain management system to reduce stock outs. Its in-house developed system was hobbling the business, exhibiting the usual vices of legacy, creating shortfalls on some brands by over 20%. The new system features a demand forecasting ability and other features that should tighten its supply chain management to optimise profitability.

Another path to squeezing more business value out of your IT is revealed by the newly minted agreement between SAP and the SAP User Group Executive Network (Sugen). Under this contract the supplier will be required to meet key performance indicators before it can increase maintenance fees incrementally.

In the security arena, last week’s Infosecurity show disclosed a maturing industry that is, at last, moving more towards services than product. Cloud computing could be a vector here, promising, as it does, a more financially compelling way of delivering IT security services.

Whatever the truth of that, the offer of the capacity to scale IT costs up and down in line with business growth or decline is a mark of an industry getting closer in sync with IT’s vocation to deliver business value. And the more it does that the less common crazy cost cutting will become.