Recession tactics: How to shave 30% off your IT costs

As the recessionary environment bites, how can CIOs contribute to business survival? After canvassing his network of CIOs, leading outsourcing consultant Dean Robb presents a series of tactics that deliver bottom-line results...

 

Over the past five years IT has come of age. Performance levels are high, software works better, and advances in communications networks now allow information to be used everywhere.

Your IT team have no doubt been patting themselves of the back and enjoying some very visible successes.

You and your staff will have been pretty happy with the performance of your IT, which has been positioned to support your business’s growth.

At the same time you’ve probably benefited financially from ‘more for less’ deals with your IT suppliers.

You may also have accumulated a bit of a mess in IT because of unplanned incremental growth. There could be too many applications running across your organisation.

Time for action
The current recession is about to dramatically change your world and you must take action immediately.

Here are some points to consider. Your business could well be one of the many that has recently deferred your entire planned cap-ex for the coming year. At this point you are provisioning for survival – not growth. The next year will be all about doing ‘less for (and with) less’.

Your suppliers are also facing tough times – many are facing seriously deteriorated market conditions. As a result – both from your perspective and from theirs – yesterday’s contracts are no longer valid. In today’s environment cash is king and your spend is golden.

It sounds dire, but there is some good news: as a CIO, you can deliver 30 percent savings to your CEO and your organisation’s other stakeholders. “Really?” you’re probably asking. “But we’re already efficient.”

Oh no, you’re not! Every business can immediately cut 30 percent. Most of these cuts will require some project investment though, and realistically net savings will take 12 months.

If, however, your company has no cash left at this point, then stop reading now. You have other issues you need to deal with.

For everyone else, there is the realistic possibility of saving 30 percent within a year by focusing on three key areas:

  • Reducing your organisation’s risk level, while at the same time moving that risk to your providers. This strategy is about negotiating better contracts with your suppliers, and giving more work to fewer of them. In short it is about becoming a better customer.
  • Paying less for lower service levels, and doing this with the blessing of your stakeholders.
  • Building a closer relationship with your business leadership team.

Low-hanging fruit
Starting on this 30 percent savings journey is not as painful as it may at first appear. There is is undoubtedly much cost-trimming ‘low-hanging’ fruit within your organisation, just waiting to be plucked. Here are four examples of actions you can start with:

1.

Turn off applications – You have probably accumulated many applications you don’t need and which no longer provide value to the organisation. It is time to focus on the core applications that deliver value – typically ERP, CRM and BI. But turning off applications needs to involve discussions which have the full attention of your leadership team and be warned, it will seem painful. However, it is a process worth going through and you cannot cut too deeply! All of your future plans are dependent upon the decisions you make at this point – infrastructure, application support and your network only exist to support the applications you choose to retain. Take comfort from the fact that you are not alone in going through this process. According to a leading New Zealand CIO, application consolidation projects have been conducted by every top-10 business in the country.

2.

Buy lower service levels – During the climate of growth we’ve experienced over the past few years, most businesses have specified ridiculously high support levels. Honestly, you can live with less, and making cuts in this area will save considerable cash with no real impact.

3.

Be determined to buy less IT and to acquire it from fewer suppliers – During the recession, the smart suppliers you deal with will value a continued relationship and the reliable work you’re offering them, albeit with less volume during the recession.

4.

Contract for longer (with caution!) – Signing up for longer contract periods often translates to better terms, so offer length of contract in return for price breaks – but pay close attention to termination clauses. Be very aware that a longer contract, with any supplier, can severely hurt an organisation if it contracts for too long on the wrong terms. Some IT service providers, for example, have been known to uses tenure as a very effective weapon against clients who contract for too long at the wrong level. It puts them in the position where they can threaten to deliver exactly what the client bought – and no more (or less).

Getting started
Start by reviewing your current applications list and looking at your spend from several different angles: What does it cost? What performance are you buying? What would really happen if you lost each app for an hour, a day, or forever? What is your roadmap for this spending? What is the guidance the business has given you? What are the political interdependencies?

Then talk to all your current suppliers and contractors and ask them some ‘less for less’ questions. What do they think you spend too much on? Where could you reduce/defer activity? What does your organisation do that adds cost to the service they deliver to you?

Ask for their suggestions in writing, and read the replies! Next, spend some time with those you trust (and seek some trusted external, objective assistance) reviewing the applications that you will keep.

Now you need an ‘end-to-end’ plan for the transition period. Don’t forget to cover:

  • HR issues for any staff leaving you,
  • legal or political issues with existing contracts that you want to terminate,
  • new and aggressive approach to DR/ BCP,
  • the impact of lowering maintenance levels on software and hardware (including the potential to not upgrade software version)
  • reducing the hours you provide support,
  • the impact on data storage for legal compliance, eg the IRD, the potential to decline software version upgrades.

From here, consider who amongst your suppliers ‘gets it’ and has answers. Can they deliver?

Remember, like your business, your supplier is configured around growth – you need to check that reducing services will work for the supplier, or you risk undelivered promises. Consider whether your supplier can scale back up when the business cycle moves beyond the recession stage.

To gain maximum effect you must reduce the number of suppliers and increase their responsibility. This change significantly shifts the risk of integration from you to them.

As you go through this process, it’s important you don’t go out on a limb – bring your organisation with you. Get the business units to understand and buy into the approach you are leading. Sell the benefits to your management team. Be the leader.

It does not depend on how big you are nor how important your spend is to your suppliers. What is really important is that you have amongst your current suppliers a subset for whom your business is really valued and who understand the new drivers. Now is the time to test the relationships you have and whether these parties’ core business lines up with your core need.

Many of these strategies have been in play for organisations who acted aggressively to cut costs as early as 36 months ago. The key is to get started – and soon.

When looking at your applications listen first to your people. Some simple applications have significant productivity benefits, or enable things to be done in-house rather than by expensive third parties. Make sure you understand the user benefits.

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About the author

Dean Robb has worked with many of New Zealand’s top businesses, and most recently managed the outsourcing selection process for a large American manufacturing company with operations in 26 countries. Prior to this Dean spent time at CA, EDS and Unisys.

 

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