8 Ways IT Can Weather the Economic StormBy Peter Iannone | Posted 10-13-2008
8 Ways IT Can Weather the Economic Storm
In today's economic climate, IT budgets are headed for stormy waters, but demand for IT services continues to rise. So how do you meet your company's mandate to do the same or more, while reducing costs at the same time?
EquaTerra, a sourcing consultancy, identifies eight key ways that help IT to weather the storm.
1. Identify what's discretionary and what isn't.
Challenge: If you have 200 people working on applications--including 50 on maintenance, 50 on regulatory changes and 100 on new projects--and you're told to cut costs by 20 percent, how do you do it? When you're under cost pressure, it comes down to determining what's discretionary and what isn't, keeping in mind that the discretionary, "nice-to-have" activities will suffer the biggest blow.
Solution: Work with your internal customers to determine what delivers real business value now versus possible value in the future, and then prioritize accordingly. You may be able to cut projects by 20 percent by trimming the discretionary work. If not, you'll need to find a way to deliver the same work for a lower price. One option is outsourcing or offshoring. If you already have an outsourcing agreement, consider expanding the relationship to include more services.
2. Reevaluate outsourcing contracts.
Challenge: In an economic downturn, IT departments are usually expected to renegotiate outsourcing contracts to reduce costs or consolidate activities.
Solution: Remember that nothing is off the table. In previous economic crises, service providers have been willing to renegotiate contracts for the short term to ensure healthy relations for the long term. For example, after the dot-com bubble burst, one network equipment manufacturer worked with its IT service provider to reset the contract pricing and terms based on current conditions. And during economic downturns in general, one car manufacturer routinely tells all suppliers that everyone needs to take a haircut. In short, when your company is earning less, you need to spend less on services, and most providers respect that.
Rescue Stranded Assets
3. Rescue stranded assets.
Challenge: As layoffs and downsizing increase throughout the business, IT may end up with unused data centers, desktops and other equipment. You need to consolidate these assets and applications, but you're not going to have the money to do it in-house.
Solution: Work with your service provider to consolidate the infrastructure, rebalancing your hardware, software and maintenance schedule to match reductions in staff.
4. Demonstrate that IT is a valuable asset, not a cost center.
Challenge: Under economic pressure, IT departments must aggressively and innovatively demonstrate that IT investments can save money and improve efficiency throughout the organization.
Solution: Work with your business partners to identify ways that IT can help address other departments' budget cuts. Consider, for instance, leveraging self-service technology to help employees and customers get information, all while reducing strain on call centers. This won't help the IT budget, but it may reduce other departments' costs while improving customer satisfaction at the same time.
5. Go for the green.
Challenge: The pressure to cut spending hasn't alleviated pressure on IT to conserve power, design more-efficient procedures and otherwise minimize its environmental impact.
Solution: Consider green initiatives that demonstrate short-term operational savings. For example, efforts such as teleconferencing, Web conferencing and work-at-home technology are all ways to reduce travel expenses and conserve transportation energy while also showing how IT can add value to the company.
Minimize Upfront Costs
6. Minimize upfront costs in outsourcing.
Challenge: When businesses are under strong pressure to reduce costs, outsourcing can be part of the solution, but it's critical to ensure immediate savings. The challenge is not just getting more for your money, but getting more for less money.
Solution: Structure your outsourcing deal operationally and financially to get the savings up front. On the operational side, strive to reduce fixed overhead such as people, applications and physical infrastructure. On the financial side, instead of paying $10 million up front to save $5 million a year, negotiate with the provider to spread the costs over time.
7. Outsource for cost avoidance.
Challenge: The pressure on IT isn't just about reducing current costs; it's about avoiding future ones. So consider what expenses you'll face down the road, and address them in your current outsourcing relationships.
Solution: If you want to implement an ERP system for 50,000 employees around the world, you're going to pay roughly $1,000 per employee for licensing, testing and implementation. Instead, you could "rent" such a system from your service provider, avoiding $50 million in projected expenses. Likewise, if you outsource your data center to a Tier-1 service provider, you'll get inherent benefits such as increased security, reliability and scalability, which can help you avoid future costs for upgrades or disaster recovery systems.
8. Plan for the bounce-back.
Challenge: Economic pressure requires you to cut costs today, but remember to plan for tomorrow. If you reduce your labor and knowledge base too much, you could be in trouble when the economy bounces back. For example, you might downsize as you put projects on the back burner, but when the time comes to rekindle them, you won't have the resources available in house.
Solution: When you're outsourcing, make sure you can get the skills you need when the economy improves. Choose a service provider that can meet your needs in both the short and long term. And when you're writing the contract, build flexibility into the agreement, ensuring that providers can turn the dial to increase resources when the time comes.
Peter Iannone is executive director of IT Advisory Services at EquaTerra.
See also: Top 10 Hidden Costs of Outsourcing