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How to survive an IT squeeze

By Alan Cane 
Financial Times 5 November 2008

Only a year ago, "agility" was the watchword, as information technology departments tailored their systems to support dynamic change. Today, with the threat of worldwide recession, businesses are chiefly concerned with survival and maintaining market position, aware that some competitors might not make it.

"The knee jerk reaction is to pull back into the comfort zone, press the pause buttons and cut costs," says Brian Murray, technology strategist for the consultancy, Morse Group. He says such a tactic can be a false economy.

For some, the ordeal has started. Jean-Philippe Courtois, president of Microsoft International told the Etre technology conference in Stockholm last month that he had been asked for help by the chief information officer of an (unidentified) large European company, who had been told to cut his IT budget by 30 per cent immediately.

Mr Courtois identified a source of savings with which many CIOs will identify - too many servers - and prescribed a dose of virtualisation: running more applications per server. For many, this is the most effective cost saving measure available today.

Others have yet to feel the pain. David Brakoniecki, CIO of the insurance broker Xbridge, said he had not yet been affected by the downturn. IT, however, was critical to the company's business: "We are trying to prepare for the way trading conditions might change over time. We believe that preparation for the bad times begins in the good times. For example, we try not to staff up massively when things are going well only to make them redundant in a downturn."

The overall picture is complex, exacerbated by the speed and depth of the downturn. Most companies were taken by surprise: "They just tore up the budget that was barely two weeks old and were starting from scratch" - a statement attributed to a Gartner Group client.

IT spending trends are confusing. Don Brown, chief executive of Interactive Intelligence, the communications software group quotes a Forrester Research survey that indicates that 43 per cent of large US and European businesses have cut their overall spending on technology products and services this year, adding that despite economic uncertainty, many companies are still running outdated legacy systems that must be updated or replaced.

On the other hand, research commissioned by Tata Consultancy Services in the US and UK suggests that only 3 per cent of senior managers and boards have reduced IT budgets now, compared with 28 per cent last year. For every two companies willing to cancel IT projects, there is another willing to increase its IT spend to counter the effects of the downturn, it claims.

A straw poll of IT experts, both consultants and vendors, suggest that wholesale slashing of IT budgets would be neither prudent nor practical, given the extent to which IT underpins most companies' operations.

Peter Sondergaard, global head of research at the Gartner group, says IT is too deeply embedded in the organisation and too critical to business performance for swingeing cuts. "In the worst-case scenario," he says, "our research indicates an IT spending increase of 2.3 per cent in 2009, down from our earlier projection of 5.8 per cent. Although the brakes are being slammed on, we are not coming to a halt.

"But there is no question that the age of conspicuous consumption is over and the age of conspicuous frugality has just begun," he adds.

He points to virtualisation, green IT, and multi-sourcing as examples of technologies and services that should be brought into play: "CIOs' ability to balance these priorities will be critical to their future success and the ability of their organisations to weather this financial storm," he says.

Some CIOs would argue that they have been fielding demands for tighter budgets and more innovation for years now. They are running lean, mean operations with little surplus fat to cut away.

However, David Elton, a senior consultant with PA Consulting says that most companies have IT departments that are larger than they need to be: "CIOs need to look at the things that are driving cost in their departments rather than looking at line items and saying 'Can we take that one out?'.

"One of the big ones is performance management. Are staff being appropriately motivated to achieve the output the business is looking for. Can you identify and reward the good people and work out what to do with under-achievers?"

Mark Lewis of the US-based wide area networking company Riverbed Technologies says: "A lot of the costs associated with IT today are all about the distribution of computing, the complexity of the ever-growing amounts of storage around offices, around the globe and the continual maintenance and management of that infrastructure." He argues that cost-savings can be made through site consolidation and bandwidth optimisation.

"In a recession you have to invest in new technology. You have to speculate to accumulate. We have customers today who spoke to us a year to 18 months ahead of when they were planning to speak to us simply because they can foresee the pressures on them as a business to reduce the costs of infrastructure."

Many observers feel that the situation, dire though it may seem, offers CIOs the opportunity to rationalise and refocus their objectives.

Charles Andrews of Celona Technologies argues: "Scarcity of capital will generate increased competition for the cash that is available. Consequently it will be even more important that businesses do everything they can to make sure their existing customers stay with them and keep spending, that they are extraordinarily tough on driving out unnecessary internal costs and that they spend to innovate and win new market share from less agile competitors."

That word "agile" again, meaning a faster, less hierarchical way of systems development. Can a company cope with the downturn and yet apply agile principles?

Chris Steel, head of IT consulting for PA Consulting in the US, says that if IT departments have done their jobs well over the past few years, they should have little room for manoeuvre on costs. He argues they should now "concentrate on building agility and capability into their organisations, emphasising an agile approach to emerging business needs which will complement their work on cost and efficiency."

According to Gavin Williams, a director at Avanade, the Accenture/Microsoft joint venture, CIOs should take three critical steps: rationalise their IT infrastructure, sweat the "human assets" by ensuring employees are equipped with effective tools - and the training to use them - and introduce unified communications to wipe out unnecessary telephone calls and travel costs.

Unified communications means the integration of most channels so that people can communicate anywhere, any time on any device. The IT solutions provider Dimension Data found that companies using unified communications on average achieved general cost savings of 10 per cent, improvement in customer satisfaction of more than 20 per cent and productivity improvements of more than 10 per cent. Travel costs, time wastage and carbon footprints were all cut by more than 10 per cent.

The need to cut costs, however, is only one burden on the IT department in times of financial stress. The business itself is likely to be looking for cost savings through redundancies with serious implications for the integrity of the company's security.

Gary Haycock-West, chief executive of the security group Blue Cube, points out that in a serious downturn, organisations such as banks might want to make staff redundant in their tens, hundreds or even thousands.

"Are they prepared for such a volume of redundancies", he asks. "If you are making whole departments redundant, human resources staff are often not prepared to close all the points to which the former employee has access."

If there is one message that emerges from these various viewpoints, it is that managing IT in a recession is very much easier if preparations have been made well in advance. To echo David Brakoniecki, preparation for bad times begins in good times.

This recession, however, took most companies by surprise and found them comparatively unprepared. It could be an uncomfortable few months or years before equilibrium is restored.

Contact the telecommunications team

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