More than any other year in recent memory, 2020 has challenged IT departments of all sizes to reinvent themselves rapidly. At the start of 2020, no business leader could have predicted the disruption that was to come. This left IT in a reactive but critical role as the health crisis hit. IT was core to delivering the organization’s products and services, as it drove the radical shift to work-from-home. At the same time, plunging consumer demand has also meant most organizations, along with IT, have had to bear the collective burden of slashing budgets.
Sustainable Cost-cutting Caution for CIOs
As we look forward to 2021, IT will continue to serve a critical function in uncertain times. However, unlike last year, CIOs can better prepare for the year ahead. The InfoTech Research Group’s “CIO Priorities Report 2021” names “Resilience” as the CIO theme and “Creating a Budget Reserve” as the #1 CIO priority for 2021.
The CIO reality is that even before 2021, cost reduction has consistently been among the Top 5 CIO priorities year after year. Market shocks such as COVID-19 can exacerbate the need for drastic yet sustainable cost-cutting. However, the proactive CIO is always looking to cost optimize to get the best value for their IT dollar and being prudent with their expenditures.
Whether you are looking to create a budget reserve, or seeking to cut costs per your organizational mandate, we urge you to proceed with caution! Cutting costs unwisely can quickly lead to a race to the bottom. Before taking an ax to your budget, you need to clearly understand:
where you are spending your money,
the value those expenditures bring to the organization,
where money can be saved with the least impact, and
if necessary, how to engage with business stakeholders to get their buy-in before you affect their ability to do business.
Trade-in your ax for a scalpel.
Common Cost-cutting Mistakes
Engage a trusted advisor with experience assisting organizations through the process of understanding the right cost-cutting approach for your organization. They will help save money while minimizing disruption to your operations.
With this expertise at your side, we recommend you avoid the following common mistakes.
Convincing senior leadership IT is already as lean as it can get. Pushing back on a cost-cutting mandate has a low rate of success. When facing organization-wide cost cuts, every business unit is expected to do its part, and even if you are right, you will not find a sympathetic ear.
Shielding the plan from the CFO and “the business” to ensure IT’s priorities are protected. While this approach may buy you time and help you avoid personnel cuts, you risk forcing through cuts that negatively impact the business and make the approval of your proposals an uphill battle.
Finding many small efficiency gains in IT’s existing services to prevent significant cuts. It may seem like a good idea to avoid large, highly visible cuts and instead make small, incremental gains in efficiency. However, efficiency initiatives are rarely sufficient by themselves to achieve significant reductions in IT spending and are rarely worth the time and effort.
Cutting and pasting cost-cutting “ideas” other firms have tried. A “quick fix” might help move the dial in the right direction, but it likely will not be enough. Inevitably, IT departments facing steep cuts will have to put their capabilities and operations under the microscope.
MSSBTA can help you create significant and sustainable cost reduction, identifying investments that deliver long-term and near-term savings. Our success is driven by a comprehensive approach that eliminates risk and aligns stakeholders. Some of these critical elements of success are:
1. Understanding the external and internal drivers dictating the urgency and magnitude of the change. This will determine your tolerance for risk, the level of investment/effort, the duration, and the complexity of initiatives.
2. Seeking out the collective knowledge of the IT leadership team and identifying additional opportunities via a thorough analysis of IT’s financials (budget, GL, invoices). Work with experts in Finance, Contract Management, Vendor Management, and other people who have relevant information to understand current costs and savings from each initiative.
3. Using a rigorous process to analyze and sift through the list of initiatives and select only those that work within your timeframe, investment, and reflect your level of risk tolerance.
4. Prioritizing and ordering your list of selected cost-cutting initiatives and building a roadmap of when each project will be executed and who is responsible for implementation. Each initiative will be aligned with one of 3 categories: minimize spend, optimize IT assets, and redesign IT delivery models with an associated payback benefit and a period.
5. Demonstrating progress and achieving stakeholder buy-in with quick wins before moving on to more complex cost-cutting options.
6. Selecting initiatives from over 100 cost reduction levers, identified from our work in this area. Some of these include:
a. Telecom Expense Management
b. Software License Spend
c. Supplier Rationalization
d. Unified Communications
e. Application Consolidation
f. Dynamic Provisioning
g. Process Reengineering
With the recent radical shift to work-from-home and the ever-present strain on budgets, you can reduce and sustain your IT costs. Understand where you spend and how the spend benefits your organization. Know where you can cut costs with the least amount of impact. And get buy-in from stakeholders before you make changes that impact their ability to do business. Proceed with caution in your cost-reduction plan and you will save money while minimizing the impact within your organization.