[/caption]
In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment. – Charles Darwin
“Cut your costs by 15%, I’ll need your report on how you will do this by Friday.”
Ominous words, but words which are all too common these days. People are stretched pretty thin as it is and if your company is like most people, the work being done isn’t going away. How will you do this?
There are several levers which you as a manager / director / CIO can pull to cut costs. The easy way (and wrong way) is to simply cut total salary by 15%, either through staff reductions or across the board salary reductions. Another way to look at this is through your IT Ecosystem and how you can leverage this to change your cost model.
In a prior post, I documented an IT Ecosystem model which outlined areas which come together to provide the technology support for an organization. While the heart and soul of your IT Ecosystem is your internal IT staff, it takes an IT ecosystem to support the technology for a business. Here are a few of the ways the ecosystem can be leveraged to cut your costs.
Shadow IT
One of the simplest ways to cut costs is to re-look at the financial model. A model whereby the IT department maintains a budget to “keep the lights on” with operational support and leading edge thinking, and development projects owned by (and within the budgets of) the businesses who will benefit from them changes the priorities of the projects. You may find that many of these projects are not as critical as initially thought and likely will experience a deferral of projects and the costs that go along with them.
Another way to use Shadow IT is to formalize the role and recognize it for the value it contributes to the overall technology support effort. It is entirely possible that the “super users” within this group will be able to (and eager to), grab more of the support role.
While these two items do not directly reduce overall organizational costs (only transfer them out of IT), the result is that business as a whole will be better able to decide its priorities and let go of those items which don’t make the cut. This will also go a long way to manage the Demand on IT, allowing you greater freedom to manage the IT Supply.
Outsourcing of IT Functions
A typical organization has many functions which may be outsourced. This is an opportunity to look at the mix of functions which you 0ffer to the business and how you may wish to change who is performing the work. In many cases, outside firms will have different cost structures and can do more better work at a lower cost than you can internally. While people immediately think of software development / maintenance, there are many other areas which can benefit. Think telephony. Think facilities. Think research.
This is also a good time to look at swapping outsourcing vendors who are not performing, or dropping a service altogether if it is proving a significant value to the business. These are direct cost savings.
Contractors and Consultants
Contractors are often used as a way to manage the volatility in IT Demand. If this is how your organization operates, then this is a natural place to trim cost. Depending on the specifics of the constraints around the cost cutting, it may be a place to move internal staff to keep them employed and providing value to the organization. In some cases it may be preferable to the employees to work on contract as the terms would often allow them to market themselves and have multiple streams of income.
By their nature, consultants provide a longer term return on the investment in them. When costs are tight, this seems to be a natural place to begin cost cutting. I would typically recommend to redirect the consultants and not drop them. Shifting focus to operational efficiencies will likely bring your overall cost structure down in the future, and it is worthwhile to keep up this investment (at least until the other cost cutting areas have played themselves out).
Looking at these areas within the ecosystem give one lever to use in managing costs. Perhaps a large one. By looking at these areas you can make much more of your labor costs variable, innovatively manage the IT Supply and Demand relationship, and under trying circumstances optimize the value being brought to the organization. This along with the other levers at your disposal will giving you a fighting chance at getting your plan together by Friday.
[Update: in Apple's Self Sufficiency Model, Andy Blumenthal presented amazing statistics. Apple has an amazing self-sufficiency model, where they have only 6 desktop support analysts for 34,000 worldwide employees, 36 helpline agents for 52,000 computers, only 38% of their IT budget is for baseline operations and 62% for innovation, and their IT spend is just .6 of 1%. These are numbers that most CIOs dream of.
While Apple has clearly developed a culture whereby the employees are self-sufficient, it also sets the bar very high for other for follow. By minimizing their spend on internal IT staff, they can afford to spend more in other areas, as well as business innovation, etc.]
A number strong ideas that you’ve made listed here, although I don’t accept all of them there’re logical.
An execllent post with correct points, I’ve been a lurker here for a while but wish to be a lot more involved in the foreseeable future.