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The recession revealed serious issues in IT cost management, issues that still need to be addressed even if economic conditions improve

Now that the economic turbulence appears to have subsided somewhat, CIOs may be tempted to relax a little, and perhaps even to look forward to a degree of budgetary leeway that has been out of the question for some time. Indeed, there are indications that many are doing just that.

But now is not the time to be complacent, experts are warning. For many organisations, the recession has revealed a dangerous lack of understanding and control of their IT costs, and CIOs that seek to return to business as usual rather than addressing that issue will be ill equipped for the post-recession era.

Positive outlook

A survey of more than 50 CIOs published by IT consultancy Xantus in July 2010 suggests that their immediate outlook is broadly optimistic. Over half the respondents, drawn from a mix of UK private and public sector organisations with annual turnover above £250 million, said they expect their IT budgets to increase by more than 10% in the coming year.

Cost cutting is still on the agenda, with 30% of respondents citing it as their IT department’s main priority for the next 12 months, but it was pipped by ‘supporting growth strategies’ and ‘improving customer experience’, each with 31%.
Interestingly, when asked what was the single most important factor in supporting the aims of the business, the greatest proportion of respondents (43%) said: “The application of new technology such as cloud computing.” By comparison, “the skills of [our] IT staff” was named the most important factor by just 19% of respondents, and “the leadership skills of IT managers” by just 6%.

According to Steve Watmough, CEO of Xantus Consulting, this finding reflects a change in focus from squeezing the maximum value from existing infrastructure towards seeking opportunities for growth. “People are saying that they’ve focused on the performance of the technology that they have for the last couple of years, and they’ve got it performing as well as they possibly can. Now it’s new technology that they think is the most important factor.”

This might suggest that many CIOs believe they have cut the cost of their IT operations as effectively as possible, and that now it is time to get back to IT’s former role as the technology deployment department. This is, according to Gartner analyst Ken McGee, a pernicious delusion.

Hard lessons

As the recession kicked in, McGee says, most CIOs were caught unawares. “Leading up to the recession, the overwhelming majority of CIOs were simply not prepared to take quick action,” he says. “Their executives said go forth and save a lot of money and do it this fiscal year, and they just did not do that as well as one would have wanted them to.”

Some dragged their heels, he explains; others even tried to make the case that increasing IT investment was a viable recessionary strategy. “It took a long time for awareness to sink in that we were in trouble, and even longer for CIOs to put together a plan, and to execute the plan, and bring savings across the finish line.”

Eventually, however, the message got through. “We believe CIOs now have a new-found appreciation of the need for speed when it comes to cutting costs. We have never in history had so many CIOs with recession scar marks.” But there is a danger that this hard-learned lesson will be forgotten amid complacency. “People are people,” McGee remarks. “Some CIOs are going to be lulled into a belief that they dodged a bullet, and that now it’s back to business as usual.”

What the recession brought into focus, however, was that ‘business as usual’ is in many cases woefully inadequate.
McGee says this was reflected in the volume of IT projects that remained in place even as the business was screaming out for further cost reduction. “Over the past two and half years, we would ask our clients: ‘When you think about IT project staff, how would you best describe the aggregate level of activity; not busy, busy, or very busy?’,” he explains.

“Out of the hundreds of clients we asked since October 2008, more than 95% told us those project staff were ‘very busy’.” “Our question is, how can you have so many people, so busy, during the worst recession in eight decades? It doesn’t make sense.”

The reason for this, McGee argues, is that despite having all manner of project governance processes and committees in place, many projects got the go-ahead without the explicit approval of a business executive and without a clear idea of the precise costs, both upfront and ongoing.

Continued...