For chief information officers and IT leaders, dark clouds are growing on the horizon, but planning is key to mitigating negative impacts.
As the initial shock of the global COVID-19 pandemic inevitably gives way to an even more challenging long-term shift in business priorities and resource availability, expect demands to rein in costs to amplify. For IT to respond effectively to this unprecedented event, it will need a better, faster approach to budget and cost optimization. At the same time, if IT leaders don’t get cost-cutting right, they could unwittingly make a tenuous situation significantly worse.
Inspire and overdeliver
Traditional approaches to budget management simply won’t cut it in this stark new landscape. Indeed, they never did. Imprecise, tactical budget-cutting is little more than a panic-driven, high-risk response to crisis.
And as you start thinking about what -- and how and when-- you need to cut, you can’t afford to think strictly in terms of reducing expenses. Dollars matter, of course: Just don’t be myopic.
Focus instead on business value, on the things you retain that drive that value, and on what the business will require as you eventually shift into recovery mode.
You’ll need to overcommunicate with business stakeholders to understand exactly how they can increase business value in each area, and then inspire their teams to deliver extraordinary results in half the time.
Also, for many IT organizations, the core technology and processes are already in place to handle this crisis; it’s how these teams manage the execution that matters. So, celebrate team members’ successes like never before!
IT’s time to take the reins and drive business value
If that sounds like a monumental challenge, that’s because it is. IT has never been more on the hook to drive business value.
CIOs must now identify and focus on initiatives that help the CEO and the business ensure the organization survives and thrives during this crisis. Partnership across the board is key for IT as the department must work in lockstep with the rest of the organization to identify big-ticket items that should be kept if they result in long-term savings. This may even include cost increases as the organization doubles down on the things that matter most. But if they drive long-term value and all partners are on the same page, it’s infinitely smarter than blunt-force cutting.
So, let’s dispense with the notion of non-differentiated cuts. Instead, IT must focus on how to enable businesses to manage costs more effectively -- and how to help businesses intelligently manage demand for IT services. In other words, you reduce costs more effectively if you reduce the business demand that drives these costs.
Focus on four key areas
To help adjust budgeting processes to the challenges posed by the current crisis, refocus your cost management efforts through a time-based lens. Below are four key categories to approach strategically (more than one year out), proactively (three to 12 months out) and reactively (within three months).
- Workforce optimization. This isn’t just about cutting personnel to meet some arbitrary headcount metric. It might also include re-assigning them, eliminating staff-related perks, and improving productivity.
- Hardware and software asset optimization. This is an area of abundant low-hanging cost-savings opportunity. Many organizations are already overpaying for unused or underused software licenses. By getting rid of multiple software versions, and accelerating server consolidation or virtualization, you carefully remove costs without affecting the organization’s ability to get work done.
- Vendor prioritization. Not all vendors are created equally -- or hold the same value to the business.Don’t just cut across the board. Instead, hold onto the true strategic partners who know your business best. Also renegotiate contracts to drive better terms -- and accrue savings not only during the current crisis, but afterward, too.
- Project prioritization. Hard times force hard, healthy decisions about what needs to get done now, what can be deferred, or what can be abandoned entirely. Partner with the business to determine what can be shelved, re-scoped, or accelerated to drive competitive advantage.
There’s no sugar-coating any of this, and headcount reduction may indeed be inevitable. But before you resort to layoffs, there are other options available to you, including redeployment of existing resources and realignment of business priorities. You must survive a crisis -- but you must also avoid inflicting long-term damage and position the business to thrive after the crisis has passed.
At this time, IT holds the reins to actually make technology not just work, but awesome to deliver business value. So, protect core IT operations and processes, align with business like never before, and deploy smart cost management. These will always win over blind cost cutting.
Graham Price is Research Director, CIO for Service Management at Info-Tech Research Group. Price has an extensive background in IT service management consulting roles, change management roles, and business management positions within the IT, financial services, and call center industries for over 25 years. For further COVID-19 response resources for CIOs and professionals, view Info-Tech Research Group’s Resource Center.