Managing IT Costs during a Recession
Since last Fall, I have been offering readers tips on how to help your business weather the economic storm. Many of you have taken drastic cost-cutting measures and made enduring strategic changes. And as IT is a common cost-cutting target, strategies like IT outsourcing have already been implemented. So what more can you do to not only control costs, but also prepare for the eventual recovery?
Despite recent reports of growing economic optimism, real recovery may take much longer than expected, as companies continue to experience declining or flat revenues. Now is the time for constant vigilance -- to revisit the basics, particularly new strategies for managing IT costs.
With a comprehensive, no-holds barred approach to IT asset utilization, your organization can boost savings, improve efficiency, and maximize return on every dollar. By putting both your investments and assumptions on the table and performing a cost-triage, you can take a leaner approach to IT that improves your liquidity today and helps you prepare for the growth that will ultimately arrive.
Innovate through oversight
The key player in any cost rest process is the CFO. But to achieve more rapid cost reductions and re-growth of profits, it may be necessary for your CFO to step out of the traditional role as guardian of the financial “silo.” To guide your organization through what seems to be this second phase of the recession, your CFO should focus on realizing tangible benefits from IT as part of a balanced oversight program.
Careful technology cost triage and oversight can yield many opportunities for CFOs to innovate. They can find new ways to manage risk and set standards for corporate performance. They may also explore incentive based strategies that utilize mindsets and corporate culture rather than traditional top-down directives. Other ideas include implementing strategies to integrate controls and metrics into operations and deploying a flexible mix of resources (staff, advisors, consultants, contractors) to enable the company to more nimbly adapt to change.
Align costs with value
What does this all mean for IT? It means a more positive oversight role for CFOs, moving beyond the traditional “do more with less” mandate of a stereotypical “Dr. No” CFO. It’s a much more meaningful role, one that results in linking all costs to value delivered -- an approach that can be a template for creating value in key areas outside of IT.
How? Primarily by working with the CIO to verify that IT delivers the basics, i.e. reliable systems that produce accurate, valuable data. CFOs must help business leaders to better manage demand for IT services. They should also insist on good IT management practices, especially deploying a flexible mix of staff, rationalizing and simplifying processes and transferring work to lower cost resources and manage demand for IT services.
When it comes to spending, CFOs must ensure that IT does not build capability from scratch. Instead, it should leverage the company’s distinctive operational strengths and managerial innovation. The benefits of IT must become balanced between rationalizing existing processes and innovating new models and processes. In general, IT must be required to create value for the company as a whole (instead of divvying up spending by function).
Provide top-line support
Your CFOs and other C-level leaders should also support the CIO, particularly through involvement in IT investment decisions and holding business unit leaders accountable for operational changes they commit to as part of the business case for IT investment. Leaders can help identify and communicate the economies of scale that IT brings to the business.
With careful execution of these steps and expansion of the CFO’s role, you can quickly generate results, such as tightened spending discipline and a clear illustration of the services being delivered. Given the volatility of today’s environment, strategies like these can help you create more variable costs and properly align those costs with the downward revenue trend.
With all businesses come tough times and tough decisions. Although you have already cut IT costs, it doesn’t mean you can’t do more. The crisis is not yet over, so it’s essential to remain in survival mode. With new technologies, approaches and products still being proven, there are ample opportunities to streamline and innovate. Don’t hesitate to buck traditional CFO roles and challenge all assumptions. Most importantly, keep your goal in sight: a lean, cost effective IT structure that prepares you for growth when the recovery finally arrives.
Mike Gorsage is a Partner and Technology Practice Leader for Tatum LLC. Tatum is the nation’s largest executive services firm, providing financial and technology leadership nationwide.
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