IT executives have a number of major initiatives available to them for cutting capital expenses and operational costs in 2008 that can trim the overall IT budget by five percent or more. The largest opportunities lie in process and management changes. There are also gains to be made from workforce alignments, including outsourcing, as well as capitalizing on technology shifts.
Workforce Alignment – 25%
Contrary to reports that job opportunities in the IT field are shrinking, the battle for IT talent is getting more intense, as the number of shortages in key areas are increasing. This is putting pressure on IT executives to create and execute a workforce diversity plan that includes hiring new talent, retention and retraining strategies, succession strategies, contingent workforce allocations, and outsourcing.
The new paradigm calls for executives to hire self-starters that are adaptive, creative, flexibility, independent, and knowledgeable in ecosystem logic rather than inflexible, in-depth technical personnel.
IT executives should be attempting to drive annualized staff productive utilization up towards 70-to-80 percent. This can only be achieved by cross-training staff to handle tasks not normally within one’s domain, using consultants, and/or outsourcing. Executives need to determine what tasks should remain in-house and which ones should be given to outside firms.
Companies must maintain control of their architecture while the construction and operations tasks may be done by outside skills, depending on the criticality of the efforts and the extent to which it is customer facing. The other core skills to be acquired, developed and maintained in-house are the user and vendor relationship management and project management skills.
IT organizations that can manage their user and vendor relationships, operations and projects, as well as strategize and architect for the future are well positioned. Add to that a good succession plan and executives will have a sustainable operation that can meet or exceed expectations.
If executives focus on restructuring the workforce to achieve the flexibility that may be required in the future, it is possible for IT to reduce its workforce expenses by up to 25%. Executives that have executed these types of plans have reduced their operations staff by up to 50% and their help desk staff by up to 30%.
Gains Through Process Improvements
Process improvements can offer the biggest gains for the IT organization. Gains can be made by addressing non-value-added projects, poor SOX (Sarbanes-Oxley Act) compliance processes, IT financial management, or non-optimized procurement processes. IT executives should undertake a study of these items and fold the quick hits into their 2008 budget planning process.
The people conflicts, culture, and personnel integration issues can be tough nuts to crack, but there are a number of areas where process improvements could occur which can reduce operational expenses. The top area for IT executives of public companies to scrutinize for savings is the SOX compliance processes.
SOX Changes – 20%
The newly approved Sarbanes-Oxley Accounting Standards No. 5 (AS5) guidelines greatly reduce the cost of compliance. One of the biggest savings from this from an IT perspective is the ability to combine all of the regulatory tests into a common test plan that can be executed periodically. The outputs and reports can be certified or validated for use by the auditors, lines of business, various regulatory agencies, or others that seek confirmation of compliance. The savings can reduce the cost of compliance by more than 20%.
Asset Review – 15%
An extensive financial review of IT assets by an outside financing organization could result in significant and rapid capital or operational expenditure (CapEx or OpEx) savings. Aside from the traditional financing or leasing deals, these companies are also willing to do asset swaps, lease/buybacks, project financing.
These firms have the ability to work with the corporate finance or treasury department and IT to structure financing terms that map to the requirements and strategies of the enterprise. By bringing them in to work with the appropriate financial unit and IT, there is a good chance that some creative financial opportunities can be identified that can result in reducing major CapEx or OpEx by up to 15%.
Moreover, many potential PC leasing opportunities that could cut acquisition costs by 15% are not able to be executed because the enterprise does not have a decent asset management process. For example, companies without strong asset management processes and controls are in possession of up to 25% more pagers, PCs, PDAs, and other client devices that should have been removed from the companies’ books. Compounding this problem is that most of these unneeded or unused units are still included in the software asset counts.
Thus, the company is paying for installed but unused software and unnecessary network connectivity, and is allowing a sellable asset to depreciate from a residual value of 10-to-15 percent to zero. IT executives have an opportunity to readily fix this problem and start recouping any added expenses within a 12 month period. This is an investment worth putting into the budget as the return on investment (ROI) is attainable in a short period of time.
Strategic Procurement – 40%
On a more global scale is the need for a strategic procurement office and process. By creating an organization that aggressively pursues contract and vendor management, enterprises can shift from being on the defensive in their dealings with suppliers to an offensive posture. This alteration of attitude and position can have impressive results, with gains up to 40%. Moreover, these organizations pay for themselves year after year.
Business Management – 10%
Another area of weakness is business management, including alignment with the business and change, configuration, project and service management. One of the biggest cost items is investment in projects that fail to achieve the desired business objectives.
Studies have shown that companies are spending 20–to-25 percent of their IT budgets on new project development and that more than half of that money (some studies say up to 75%) is wasted in projects that are cancelled, fail entirely, or do not achieve their business objectives. Implementation of better IT alignment and project portfolio management processes can significantly cut those costs.
IT organizations can become more efficient and effective in the delivery of their products and services. A quick hit can be a refinement of the change management process. An effective change management process can reduce the number of changes, improve quality, and shorten time to market and thereby reduce the overall costs of projects by five percent or more.
Records (Mis-) Management – 20%
Another area of process improvement is that of global e-records management and information management. Companies are still maintaining a number of duplicative copies of data, in some cases more than 50 copies. Enterprises that have created golden copies and tagged others as temporary or who have consolidated the databases into shared repositories have been able to reduce storage requirements and growth, shorten the job schedule cycle, minimize e-discovery costs and risks, and better balance online and archived data.
Most IT executives are familiar with many of the technology savings but surprisingly, these same executives are not aggressively pursuing them. There are a number of short-term, quick hits IT executives can attack and therefore achieve savings in the 2008 budget cycle.
Getting Green – 10%
A very hot topic today is that of “going green.” Over the last two years, enterprises have become aware of the energy costs of operating data centers. The power costs have gone from an expense that only the facilities department cared about to one at the CEO, CFO, and boardroom level. Executives should be able to reduce data center energy costs by 10% or more.
Modernization – 40%
Companies are also addressing the cost challenge through application and system modernization, platform consolidation, and virtualization. Although most large enterprises have one or more of these efforts ongoing, savings from them are uneven. Companies can achieve operational cost savings of more than 30%, with the project break even points in the 12-to-18 month range.
Truly successful projects have taken a holistic approach to the problem and address the following key areas:
Projects of this nature have been undertaken by both HP and IBM and both parties are pointing to dramatic gains.
Measuring Metrics – 15%
The last of the top 10 is process management. This is back to basics for the last of the savings. IT executives need to establish meaningful measurements and then manage to them for each of the above or, for that matter, any initiative. Tasks that are tightly monitored, managed and reported on do result in a reduced time to deliver. IT executives that improve their management methods can meet the demand to “do more for less” by up to 10-to-15 percent.
Executives have an opportune time during the fall planning cycle to re-evaluate its workforce allocations and diversity, process improvement plans, and data center operations initiatives and to adjust them to achieve greater savings. IT executives should seize the initiative and work with line of business, finance, procurement, and other senior executives to develop strategies that can help their enterprises achieve their short- and long-term goals and strategies.
Cal Braunstein is CEO and executive director of Research for the Robert Frances Group . For more detail on these tips, go to the RFG website and follow the instructions in the RFG Risk Management Seminars box.