Strategy Clinic: How can I cut costs?

Like many of my peers in IT, I am under pressure to contain costs at the moment. Can the members of the panel give me three easy...

Like many of my peers in IT, I am under pressure to contain costs at the moment. Can the members of the panel give me three easy wins that I can put in motion straight away?

Roger Marshall , Elite
It is difficult to give a concise answer which does not merely restate what you already know. Much will depend on where you are starting from and how much action has been taken in the past to contain costs.

One good starting point is to consider what is different about the IT business today compared with a year ago. Some parts of the industry are suffering a severe down-turn in business and resources are no longer scarce. In other areas, technology has marched on and price/performance ratios have changed.

For years many of us have hired contract staff simply because we were unable to recruit people with the right skills. Do you still have expensive contractors meeting long-term requirements which could now be converted into in-house posts?

Another thing that has changed is the cost of capital - interest rates are very low at present. Are there opportunities to re-finance leases or to turn rental arrangements into one-off capital payments? Obviously you will want to be sure that you are not at the same time increasing your risk from company failure, so get appropriate legal and finance advice.

Examine all existing support and maintenance agreements. You have probably got some relatively old kit which is costing more to maintain than it would to buy a modern replacement. Do you have maintenance and support agreements which are simply no longer necessary?

Likewise you may be renting telecoms lines where there are now cheaper and better alternatives available.

Roger Elvin , Cranfield School of Management
If your budget is anything like the ones I used to manage, you have very little in the way of discretionary spend.

Three common responses to budget pressure are:

  • To take out the "padding" that you put in your budget as a negotiating ploy

  • To kill all projects that do not have a compelling business case. Most organisations that we work with have current project lists that far exceed the capacity of the IT and business resources available to them

  • To cut back on contractors, consultants and staff training.

Although these are common responses to the call for budget cutbacks, I would only recommend the second. Focusing resources on the relatively small number of projects that will have a significant business impact is good practice even when times are good and becomes critical when budget are under pressure.

A more productive approach, particularly with regard to the operational side of your budget, is to reframe it so that you can put a cost on each service you provide to your organisation. You can then point out to your business colleagues that there is a direct relationship between service quality and cost.

If your organisation genuinely needs to reduce cost then it has to decide which services it does not need or where it can accept a lower quality of service. They may not like being brought into the loop but at least you are in with a fighting chance of engaging in a constructive debate about IT costs.

While the cost of service is invisible to your business colleagues, it remains your problem solely.

Christopher Young , The Impact Programme
Knowing little about your specific situation, I would suggest that you should not look purely at cost but also at value.

There are some basic principles to follow:

  • Understand the value that the business is deriving from the expenditure - by understanding where you are delivering benefits, you will ensure that you economise in the right areas

  • Know what percentage of your budget is spent on what - look for savings in the larger expenditure areas

  • Approach the business colleagues with suggestions about how they could get more out of the existing IT systems and infrastructure.

In terms of easy wins, I would concentrate on three key areas:

  • Fundamental infrastructure - this adds little to the business but is a requirement for providing services. Re-assess your requirements and, where possible, renegotiate contracts. It may also be worth considering outsourcing some functions. When negotiating, remember that the IT supply industry is going through tough times as well and those with high capital costs need volume. They therefore want your business

  • Projects - re-evaluate with the business any projects which involve your resources. Are the requirements still there? Is the project going to deliver the promised benefits? Can the deadlines be lengthened and the resources reduced? Remember, 78% of strategic IT investments fail to deliver the benefits promised

  • Consultants - reduce the number of consultants that you use. This can be done by spreading project time-lines and ensuring that all your full-time resources are being fully utilised. You may need to train your permanent staff to undertake some of these roles but it should be cheaper in the long run.

Focus on delivering business benefits not just on cutting costs. If you can find ways of helping your colleagues to increase loyalty, enhance service or get more out of what they already have you will be doing a better job than the person who simply reduces costs.

Roger Rawlinson , The NCC Group
This may sound like an odd question, but do you know why there is pressure to reduce costs in IT? Does your organisation fully understand the role of IT and what benefits it delivers now, and have a strategy to enable future growth and development?

Are you confident that you deliver real benefit so that you can justify the cost?
Three areas that I would look at are:

  • Standardise for economies of scale, such as standard builds, configuration and procurement of hardware including PCs, printers and consumables

  • Convergence, such as network servers and applications - could one "big box" replace a multitude of servers around your organisation? Eliminate non-standard platforms and limit tool suites

  • Review management and support processes. Are you implementing remote support for your applications and systems? Review the current projects, are they all required? Benchmark your management processes.

In order to reduce costs over the long term it is likely that some up-front, one-off investments would be required.

One final thought: is IT "paying" for any services that should be bought by other departments? This may not help the bottom line, but would enable true costs to be understood.

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