CIOs must prepare to cut costs, avoid hurting business goals
It’s time for CIOs to start preparing for a recession. That means making friends with the CFO.
Time to start golfing with the CFO. With the United States possibly on the verge of a recession, CIOs need to get more face time with their chief financial officers, analysts Andrew Bartels and Alex Cullen advised Thursday at Forrester Research’s IT Forum in Las Vegas.
“The CFO is your best friend in a recession,” Cullen said. “Or your worst enemy, if you’re not careful,” Bartels added, during a session titled “What a CIO should so when the U.S. slips into a recession.”
Some economists think a mild recession has already begun, Bartels noted. If it hasn’t, a mild recession or even a major recession could begin soon, and IT spending will certainly be affected. While technology capital investments grew at a 6% rate in 2007, Forrester projects less than 3% growth in 2008. IT budget spending grew 6% in 2007 but will grow only 4% this year, the consultancy also predicts.
CFOs will be looking to defer capital expenses, cut discretionary operating expenses, defer hiring, accelerate retirements and focus investments on projects with short-term paybacks, the Forrester analysts said. Budget cuts might not take effect right away, because CEOs like to wait and see if their businesses can maintain pre-recession revenue. Even if the CFO isn’t demanding cost-saving measures today, it’s already time to start preparing.
“Get close to your CFO. That’s a critical thing,” Bartels said. “Be prepared, your CFO is going to be turning to you and saying, ‘what can you do [to save money]?'” Share contingency plans and calculations with the CFO, and work with the CFO on the timing of key decisions, Cullen said. As a general guideline, CIOs should spend 60% of their time focusing on the needs of the CFO and 40% on business units during a downturn. In good economic times, that percentage should be reversed, according to Bartels.
More advice from the analysts includes:
* Defer hardware and software upgrades, unless there’s a technical or support requirement. But first determine the risk of deferring these infrastructure investments, such as server upgrades.
* Look for a mix of projects that reduce costs and create revenue or customer opportunities.
* Quantify the implications of deferring business initiatives that depend on technology.
* Present the cost of services vs. the impacts of cutting services to the CFO.
* Consider dropping new projects, even if they are already underway, unless they will lower business and IT costs. Protect R&D spending because it will yield future gains and is hard to restart once cut.
* Get rid of duplicate applications.
* Retire or recycle hardware made unnecessary by tough economic times. In other words, if 5% of your workforce has been laid off, get rid of 5% of PCs.
* After layoffs, try to save money from vendors if you have an employee-based licensing structure.
* When forecasts of business growth are revised downward, capacity expansion should also be curtailed.
* Focus on projects that will yield short-term ROI.
Saving money will be tough because only 22% of IT budgets are investments in new and improved capabilities that support growth or reduce costs. The rest, 78%, is for maintaining and operating existing systems and equipment, the analysts said.
There isn’t a lot of obvious fat in maintenance and operations, but CIOs should scrutinize these budgets, comparing them to past years’ budgets and those of competitors. CIOs also can measure the maintenance and operations costs as a percentage of the business’s total revenue, and attempt to drive that percentage down over time.
The CIO is in a unique position because technology is so vital to all or most business initiatives, Bartels said. “CIOs in many cases have more insight into the business as a whole than anyone else,” he said.
Thinking long-term involves preparing not just for a recession but also for the ensuing upturn. Saving money is important, but not at the expense of your business’s future, the analysts said. CIOs should stay aligned with business-unit partners, anticipate the technologies that will be necessary to support renewed growth after a recession, and understand when delays or project cuts are hurting business goals.
