Bad Economy: Spend on IT or Cut and Run
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IT advisor Gartner's advice to CIOs that they should begin cutting IT spending as the economy weakens is at odds with some business-technology experts who see companies gaining a competitive advantage by investing in technology during a downturn. |
According to a Gartner statement, IT organizations shouldn't wait for an official declaration that a recession has begun before undertaking IT cost-cutting efforts.
"Gartner believes that as concerns increase for the near-term health of some of the world's largest economies, those responsible for IT budgets can expect to receive mandates from senior executives to cut IT costs as part of an enterprisewide cost-cutting program," the statement says.
But, as detailed in this month's CIO Insight's editorial, IT Spending in a Slowdown, it's during harsh economic times when CIOs should aggressively pursue strategic IT investments that will give their companies a competitive advantage when the economy rebounds.
During the last recession, business advisor Accenture invested heavily in a new enterprise system that provided significant saving through lower maintenance, integration and other costs when the recovery occurred. "Economic pressure provides a great opportunity to focus on transforming IT," says Accenture CIO Frank Modruson.
Benchmarking pioneer Howard Rubin sees investments in IT as giving a company an important leg up over rivals. Otherwise, he says, the consequences could be dire. "In a time where they should be spending their way through a crisis and using IT as the lever, they're cutting IT, and operating expense will go the wrong way, and they'll lose any competitive edge they'd ever had," Rubin says in this month's Expert Voices interview, The Cost of Bad IT Economics.
Still, for those wanting to cut, Gartner suggests that companies establish ground rules to complying with such a cost-cutting requirements by following a six-step plan:
1. Prepare a cost-cutting team now rather than waiting for official notification of the beginning of a recession.
2. Choose the best and brightest IT people for the team that will suggest cuts.
3. Don't allow finger-pointing or second guessing.
4. Enlist an internal auditor as scorekeeper.
5. Report results weekly.
6. Name a liaison from the legal department.
But for those who want to resist slashing the technology budget, Rubin suggests CIOs encourage their bosses to look at the 93 percent of corporate operating expenses that doesn't involve IT, where less damaging cuts can be made.
Comments (4)
I want everyone to believe Nicholas Carr; IT is just a commodity. Then my IT area will have to spend less money to create differentiation via technology and become a market leader. Please, cut your spending. I need the work!
But seriously, cautious spending is always advisable but when markets become unpredictable, even more so. Cutting spending would depend on what you cut. I can put off an oil change with little risk to operating the vehicle. Or buy cheaper oil to save money and increase risk. But I cannot stop changing the oil altogether without anticipating even more costs in the future.
Posted by M. Peter Hansen | February 27, 2008 11:49 AM
I love Gartner's recommendation No. 2. They should change that to, pick the employees easiest control and then insert words in mouth, as the best and brightest would never join that team.
They would simply see the underhanded-ness of this approach and go work for an employer that doesn't immediately get sweaty palms every time Gartner spews advice.
I think Gartner is much more effective at telling us the probablitity of some yet to occur event or trend, to occur. I have never understood what value that brings to any single company, but it is always interesting reading.
I would caution any middle level management to create a team without the sponsorship of executive level management. I would also hesitate to make any move without considering your companies current situation. It may also be beneficial to look back in history and see how your company has weathered similar situations(and the long term impact of those actions).
Posted by BufoMarinas | February 27, 2008 12:02 PM
You could agree with Gartner if you view IT as merely a cost center. You could agree with Rubin if you think IT can make the business more agile in the downturn.
Cutting IT too much in the downturn means you will not be ready for the uptick, you will be playing catch-up. Staff cuts now are madness, especially if you lose business-savvy IT guys; the supply deficit over the next eight years will make you pay way more to replace than you saved by cutting now.
You might be starting a downward spiral. Why augur in now if you think the business is viable?
Posted by Tom Lodahl | February 27, 2008 3:53 PM
During times of recession IT talent remains high and vendor relationships remain strong. I remember back after the dot com melt down that the career role of an IT professional was re-shaped. During the dot com era a taxi cab driver could go down to a local bookstore and buy the latest HTML how-to and land an IT job in a month. During the dot com meltdown the jobs were scarce and talented professionals not only stayed, but were also at a more affordable labor cost.
Also during the previous recession earnings by Cisco, Novell, Sun, and others were down considerably. This was most certainly a time to re-negotiate that support contract or get a discount on more infrastructure. Just as real estate investors attempt to buy when everyone sells it should be a great time to invest in long term IT assets during a slow down.
Posted by Jon Unger | March 10, 2008 2:37 AM