Optimising Operational IT – industry context

In the six months since October 2008, successive market analysts and researchers have cut their forecasts for IT spending in 2009.

In March, for example, market watcher Gartner dramatically adjusted its prediction for global IT spending growth for the year from 2.2% to -3.8%. Meanwhile, investment bank Goldman Sachs is even more pessimistic, predicting that IT budgets will shrink by 9%.

And that is mirrored in the feedback in Information Age’s survey on Optimising Operational IT, which, with the opinions of over 550 senior IT decision-makers, is one of the most comprehensive on UK spending plans to date.

Across all these research initiatives, though, the message is the same. Even if there has not yet been an official spending cut mandated by the business, the cost-cutting agenda is once again front and centre for IT departments.

That puts all IT expenditure under new scrutiny. In many cases, the relative prosperity of the years between the dot-com crash and the credit crunch has encouraged, if not outright inefficiency, perhaps slightly more relaxed rules for justifying IT expenditure. Prime examples might be how low-cost, high-performance servers were acquired in their thousands, often only running a single application at utilisation rates of 5% to 15%; and the profligate approaches to storage characterised by the attitude of ‘keep everything because storage is cheap’.

Still, walking through a business’s data centres looking for things to switch is not necessarily the best approach to improving IT efficiency. Indeed, an uncoordinated approach is likely to be permanently damaging to the organisation.

“Except in the most dire circumstances, turning off technology investments during a downturn is counterproductive,” consultancy firm McKinsey wrote in a recent report.

Instead, the report’s authors advocate intensifying collaboration between IT and the business to support a business process-oriented efficiency drive. Not only can this approach help to identify which technologies are vital for supporting business processes (and which are not), it can also find areas where IT investment can help to grow revenues.

“When business and IT executives jointly take an end-to-end look at business processes, the resulting investments can have up to ten times the impact of traditional IT cost reduction efforts,” says McKinsey.

This kind of approach is simply good IT management practice, and the comments from McKinsey serve as a reminder that the recession is no reason to throw out the ideals of business-focused IT decision-making.

However, for a minority of organisations, the situation may be so dire that the immediate priority is simply to ensure survival. Analyst company Gartner recently presented a short report on the topic of ‘emergency cost optimisation’.

“The nature of this economic downturn may leave some IT leaders, business leaders and shareholders with no other choice but to make immediate and ruthless reductions in IT spending, even if they risk increasing IT costs in the longer term,” say Gartner analysts.

Common techniques for short-term IT cost optimisation include redrafting service level agreements (to, say, provide 12/7 rather than 24/7 helpdesk facilities); ensuring business units are being charged back for all the IT services they use; postponing IT expenditure on non-critical systems to later years; and deciding which contractors and staff the IT department can survive with (and which without).

But Gartner’s overriding attitude to such measures is unambiguous. “Emergency cost optimisation is inherently short-sighted, since few enterprises or IT organisations can sustain themselves indefinitely using these practices,” the report’s authors write.
“From an IT organisation perspective, radical actions to free up cash flow often lead to a higher IT cost baseline in subsequent years, poor service delivery and business unit rebellion,” they add.

Even for organisations where there is no danger of going out of business, that last statement should be a guiding mantra for the coming months.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media (now Bonhill Group plc) from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The...

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