You’ve heard it before, and you’ll hear it again: Find a way to cut IT costs. Chances are, you’ve already taken a stab at it. Most companies, for example, have implemented some sort of server consolidation or virtualization to simplify management, reduce power and cooling, and increase capacity utilization. Others have chosen to put off new projects or hire new staff. But clearly, that’s not enough.
Company executives are worried more
than ever about the bottom line, and the edict is coming down hard from above.
IDC, for example, recently noted that more than half of U.S. IT organizations
have reduced spending for 2008 due to the negative impact on budgets from the
economy.
The best strategy is to go for the
biggest payoff; focusing on the small stuff won’t yield much, said Ken McGee a
vice president at Gartner of Stamford, Conn. That means areas like the data
center, software, salaries, contract labor and network services.
“Start by looking at the budget
versus your monthly reports, and go for the big numbers—things that will yield
a net impact in 2008,” he said.
For many companies, that means
focusing on maintenance agreements and software licenses. If you have
identified software that will be retired or replaced down the road, for
example, don’t renew maintenance, and don’t buy upgrades.
Also take a hard look at the
software and hardware you currently have installed, with an eye toward
simplifying and reducing redundancy.
“Find out what your employees are
using on their desktops. Are we buying it from different vendors? Find the
inefficiencies and put some controls around limiting software purchases,” said
Paul Frank, a consultant at Diamond Management & Technology Consultants of Chicago,
Ill.
Do the same thing on the hardware
side. According to Frank, the average midsized company has an average of 1.5
desktop or laptop units per company. Find out what you have and try to
consolidate that, along with servers, he said.
Consolidation can be a major money-saver,
McGee said. If you’re signing a new contract for network services, for example,
make sure various services that reside under different contracts are rolled up
into a master contract. “Just doing these kinds of things will yield big
results,” he said.
And don’t forget about the really
simple thing; simply reducing electrical utilization can make a big difference. “It has a
measurably favorable impact that once the CFO sees, he will never let it go,”
McGee said.
When it comes to personnel, be
open-minded, but be careful, McGee said. Don’t cut people you might need when
the economy rebounds.
“In the ten recessions since the end
of WWII, recessions have lasted less than a year, so you have to get your head
around what’s going on and the likely impact. We really need a reality check,”
he said. “We are not of a mind to say start cutting people because the return
growth will be here within a year.”
That doesn’t mean there isn’t fat to
cut, however. When it comes to external suppliers, such as consultants and
vendors, determine whether you are paying the right amount for each type of
service.
“Sometimes a company becomes
addicted to an external provider and will pay them the same amount of money to
solve non-complex problems that they originally paid to solve complex
problems,” Frank said. To solve the problem, standardize on who you can source
with and the range of payment that makes sense for specific tasks.
Although cost-cutting is important,
be careful not to cut too deeply, or you could impact the viability of the
business over the long term, McGee said.
“Never cut hardware, software or
services without first calculating the impact, both financially and
operationally,” he said. “Some people just stop contracts without a lot of
thought behind it because they think it can be done without pain, but it turns
out to be a domino with a cascading effect,” he said.
And don’t
forget to keep investing in the company, despite the need to reduce costs. “If you under-invest for several years in a row,
it can really hamper your business,” Frank said. Upcoming research from Diamond
Management Consultants proves that when companies invest during recessions,
they re-emerge in a much better state than companies that have cut to the bone.
“And don’t stop investing in people,” he added.
