I know, I know. Been there, done that… You had a project to trim IT costs last year, didn’t you? And your company took off 8.9% or 12.6% or something. There was a lot of clapping afterwards. Targets hit! Success! But how are things now? Better or worse? I’d hazard a guess, but then it depends how you want to measure success.
Whether you did or did not have an IT cost-saving initiative in the recent past, there are very few companies world-wide where it would be impossible to save up to 10% on like-for-like IT costs. Very few.
How so? Because total IT costs are probably greater than you realise. Because we never consider 'the whole'. And because we tackle IT cost-saving initiatives in a 'traditional' way. Actually in the wrong way. In the standard approach we tend to apply Neanderthal methods - and this after we have set our shaky foundations by asking the wrong questions in the first place. Like "What is the IT budget?". That’s not the totality of where you should start.
So where do people typically go wrong? What are the common mistakes? How about these:
- Let’s start with the "What is the IT budget?" question. The IT budget is NOT the total cost of your IT. It’s just a convenient sub-set with a suitable label. It ignores the 'non-IT' IT costs: the cost of guerrilla IT, the financial benefits IT can bring, the impact elsewhere of poor processes, the opportunity costs missed through doing IT badly… So, Fundamental Mistake Number 1 => the IT budget is $x, therefore 'Success' = 90% of $x.
- People - and Fundamental Mistake Number 2. You have 100 people in IT; if we’re saving 10% of cost, then we need to lose 10% of the staff. QED = Redundancy programme. As a default position, complete rubbish. It ignores what people do - and what people could do, and the value they could bring. It ignores the impacts of morale, productivity, organisation etc.
- Closely allied to FM⌗1 comes Fundamental Mistake Number 3: we’ll go to all our Suppliers and tell them we want 10% off their bills - or else! Simple. And being tough makes us feel good too! Against playground bully threats, why should they be inclined to help us?
- A fourth common thread to a cost-saving initiative is to cancel stuff, typically Investments, Programmes and Projects. Never mind if these will eventually deliver financial benefits to the business overall, they are labelled as 'IT costs' not business costs, and therefore are fair game. Fundamental Mistake Number 4: throwing the baby (and potential benefits) out with the proverbial bathwater.
Underlying all of these are a couple of additional core failings.
The first relates to measurement. A bit like the "What is the IT budget?" question, unless we get the measurement parameters correct up front, then we cannot possibly hope to get an accurate answer out of the back-end. We get an answer, yes - and one that we can probably manipulate to paint whatever picture we choose - but almost certainly not the whole truth.
And the second relates to duration. More often than not cost-savings initiatives are undertaken in too short a timeframe. This is because it is believed an impact is needed now; evidence is needed now; success is needed now; someone needs to look good now. Even if it really isn’t success at all…
Thus, Fundamental Mistakes Numbers 5 and 6.
At the end of the day it doesn’t take a genius to come up with an IT cost savings plan. Just write the first four fundamental mistakes as bullets on a single PowerPoint slide, give it to the IT Director or a Programme Manager, and tell them they’ve got six months to deliver. In fact it definitely doesn’t take a genius to do that.
And the impact of all this slash and burn? Probably two years later when IT is in an even worse mess, when service is dreadful, when nothing is being delivered, when business people outside of 'formal IT' are going off and doing their own thing even more than before - and when, to put it right, costs twice as much as was 'saved' in the first place.
There is a different approach. And it’s an approach that involves asking more questions up-front than just "What is the IT budget?". It demands a different way of thinking about IT costs and IT benefits. It needs all Execs and functions in a business to engage collaboratively and to avoid the traditional 'IT is the Bad Guy' approach. And it requires acceptance that you can cut like-for-like total IT costs in ways that might actually increase the 'formal' IT budget or the IT headcount; that you can potentially save money overall by paying a few suppliers more, or by increasing investment and not cutting projects…