IT Spending Cuts Save Little, Cost Plenty

The economy is slow and financial risks are high. When money is tight and companies go looking for savings, information technology is an easy target. IT spending, as a percent of total corporate spending, is generally in the single digits so the savings are never big but they are easy – and shortsighted.

There will always be pockets of waste in IT as in any department. Good CIOs chase down those waste points and choke them. That should be an ongoing effort not a response to slowing market conditions.

IT must deliver long-term value by improving efficiencies and driving revenue growth. Cost cutting merely buys time and hides the real issues that limit growth. Rather than just cutting IT spending, think about targeted IT investments that can energize your business and get the company growing again.

Many companies have already leveraged technology to reduce costs and promote business growth. They have studied the competition and examined other industries to learn new techniques. Here are a few examples where specialized technology has had a major impact on the bottom line.

Product pricing can be managed in fine increments to minimize discounting and maximize volume. This requires a deep understanding of consumer behavior and buying patterns. Do not just raise prices to increase revenues. Manage pricing to optimize sales.

Inventory can be a drain on cash and difficult to manage. Inventory levels can be minimized by leveraging the supply chain and analyzing historical order patterns. Do not just cut inventory levels and risk product shortages. Partner with suppliers and micro-manage inventory to extract the most value.

Customer support costs can quickly mushroom out of control. The solution is to automate the call center, take full advantage of email, and provide customers with self-service options. Cutting back on customer service is a bad idea. Empowering customers to help themselves and each other builds brands.

Process inefficiencies are rampant. Firms go to great lengths to improve process flows within a group or department. They rarely, however, examine the flow across groups. Significant savings can be had by identifying these bottlenecks and applying the right technologies.

These are just a few examples. There are many more. Information technology has much more to offer than just data pipes and storage arrays.

Most companies are sitting on huge volumes of data. Everything anyone ever wanted to know about the business is sitting on disks, tapes and optical media. Unfortunately, the nuggets of insight that can improve the business are hidden under piles of electronic waste.

To take full advantage of information technology, find technology providers with a proven track record for solving your type of problem. But first, take steps to consolidate and upgrade your existing infrastructure. A solid technology foundation is essential.

Be sure your network and data stores are up to the task. Identify systems that are heavily used and potential bottlenecks. Upgrade, replace or re-purpose as required. You do not need wholesale upgrades. You need targeted investments.

Be sure your data centers are properly outfitted and organized. Spaghetti wiring, inadequate cooling and undersized systems run up operating costs. Also, keep production servers in the data center, not under someone’s desk where dust and heat can take their toll.

Take advantage of software virtualization wherever possible. You can drive up hardware utilization rates and drive down data center costs by using virtual machines.

New technology always presents new risks. Do not be afraid of the bleeding edge but do not become some company’s beta tester using your production systems. If you decide to take a risk on emerging technology, have an alternative strategy in place.

Too many companies insist on inventing their own solutions. There are many commercial and open-source software packages available to solve almost any business problem. In-house development should be reserved for projects that promise a well-defined competitive advantage.

For new applications, consider software-as-a-service wherever feasible. Start-up costs can be dramatically lower and time-to-market may be shorter.

Mundane issues also need consideration. Dealing with legal and regulatory compliance issues can drain cash out of a company. Restoring lost or damaged data not only wastes time but can also put the company at financial risk.

Draw these issues out at the beginning of a project and manage them up front. Build security and privacy features into the software. Do not add them at the end.

Data backups are often an afterthought or are given no thought until disaster strikes. Have backup and disaster response plans in place. It is easier to survive an economic slowdown than a major disaster.

Follow these guidelines and your company will save money and be ready to drive revenue growth as the economy recovers. Cut spending if you must but do it in a way that reduces excess and redundancy. Across the board cuts are a bad idea.

Vin D'Amico is Founder and President of DAMICON, your ADJUNCT CIO™. He helps companies avoid the subtle mistakes that cause missed deadlines, lost opportunities and fragile results. He shows them agile approaches that slash risk and cut development time so they get to market 25-50% faster. He helps them carry that momentum into the sales cycle using white papers and case studies that accelerate the selling process.

This article appeared in Vin's monthly Virtual Business column for the IndUS Business Journal in October 2008.

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