Strategies To Save

What's the outlook for IT spending?
Strategies To Save

Steve Bloom, CEO and owner, Pragmatek Consulting Group, Minneapolis
Pragmatek has not seen a significant slowdown in IT spending. Many of our clients are taking the opportunity to streamline certain business processes and then match them to what IT solution can make them more efficient. For instance, now that production is down, they are trying to standardize certain business functions which had become siloed due to acquisitions, growth, and mergers over the past several years. Certain functions, such as customer relationship management and supply chain management, are really hot right now. I expect this trend to continue throughout the rest of the year. We are not seeing large implementation projects, such as comprehensive ERP installations, but rather more strategic projects.
For clients who are hoping to trim IT budgets, I think the first thing they should look at is their lower-performing employees. Now is the time when it makes sense to shed some staff when things are not as busy, as sad as that is to say. To reduce the workload of remaining staff, now is a great time to cross train the employees so they can be more efficient. Training companies are really suffering, and you can cut some great deals with them.
I would definitely look at non-strategic functions to outsource—that is, areas of the business that do not provide you with a competitive advantage. Typically areas such as human resources and payroll and e-mail services fall into this category. You can outsource certain functions and reduce the staff needed to support these areas.
I think getting leaner and having better trained employees will really position companies to be in great shape once the economy improves. [Companies shouldn’t] skimp on keeping their existing infrastructure current. Do not allow the systems to get too far behind in version releases and technology upgrades. This can be very costly to improve if left too long.
James Jungbauer, president, Hollstadt & Associates, Inc., Burnsville
Over the past couple of years, our clients have tightened IT budgets and adopted a strategic approach to IT expenditures. They are planning for slightly lower IT budgets through the third quarter and expecting a rebound around year end 2009, with stronger budgets in 2010.
While everyone is more aware of budgets in general, the fundamentals are critical to success—plan, prioritize, and execute. Many of our clients for years have used virtualization, outsourcing, near shoring, off-shoring, and other strategic initiatives. The economic slow down has not “caused” these strategies, rather the desire and need for continual improvement has driven these changes. We’ve seen CIOs try to optimize cash and increase returns by selling and leasing back hard assets, or getting favorable vendor financing on large capital expenditures.
Green initiatives in the IT world help reduce consumption of energy and save money. An IT organization is not going to balance their budget by going “green” but they are going to save money. For example, in a recent survey conducted by Enterprise Management Associates, it was reported that an IT department with 1,000 users could save up to $73,000 annually by going green through better power management on their PCs and laptops!
It’s always smart to consider outsourcing and other cost saving programs, but firms should not undertake outsourcing as a tactical response to a short-term problem. These types of strategic decisions should have little to do with economic cycles. IT leaders may be able to negotiate more favorable terms because of the financial status of the economy, but to make an outsourcing decision based solely on today’s economic conditions is shortsighted.
With the financial debacle, firms across all industries can expect to be more highly regulated than ever before. After pumping trillions of dollars into private industry, public opinion will demand governmental oversight. The ability to track and report on your products, services, and people will be necessary. By working closely with compliance departments, legal experts, and industry organizations, forward-thinking IT leaders will have an advantage over their competition when the changes come.
What is exceptionally challenging in this environment is the need to provide an even stronger return on investment then just a year prior. The push for even better returns in well managed organizations has caused many firms to tackle problems and budgets in ways they never have before. Thankfully, the majority of firms are passing this test with flying colors.
John Scanlon, partner, LogiSolve, LLC, Plymouth
Yes, spending will be tight in 2009. That said, our Minnesota clients have been value conscious for many years. For example, we have a division focused on digitizing paper prescriptions and forms to help the health care industry lower costs.
In the event you have a long-term internal project, now is a great time to hire full-time people who are highly qualified and will be reasonably priced. In the event you have a less consistent workload, utilize a local consulting company with a reputation for top talent. Avoid firms that provide college graduates at high rates. Now is the time for every person in your building to be a leader and top performer.
Bringing in experts in a given field is a way to drive better results, faster, and more economically. For example, LogiSolve has contracted for many years with a trusted payroll expert to do our payroll for more than 120 people. He charges us a reasonable rate and gets the work done accurately in 10 hours per month. This is a much smarter than hiring a full-time resource to complete the same task. During busier times, we simply use more of his time to handle year-end taxes or other important tasks.
Many of our clients have been preparing for this type of situation over many years. Several have strong internal project offices to prioritize those projects which will drive value and lower costs. Several have adopted lean project management methods such as RUP lite, lean Six Sigma, and Agile to more quickly bring projects to a value-based deliverable. Two of our clients have implemented shared QA centers where multiple projects can tap into quality experts and performance tools versus duplicating those costs throughout the organization.
Rick Kuula, president, Solutia Consulting, Stillwater
Overall, I am cautiously optimistic that as 2009 progresses, things will continue to improve. This recession is far from over, but I don’t see it affecting IT quite like the 2001 recession did. Back then, IT was hit with excess capacity from Y2K as well as the dot-com bust in addition to the downturn. Today’s CIOs and IT directors have done a better job of aligning IT goals with business goals, making IT a stronger contributor to improving the business’s bottom line. IT can bring the analytical skills and technology expertise needed to help the business transform into a leaner enterprise—through product innovation, automation, customer service, going green, or any other business initiative.
Everyone’s budgets are being scrutinized more closely and many projects are requiring more approvals. I advise clients to review their application portfolios and projects in light of staff and budget reductions. They need to prioritize what adds value to the business now and align projects with goals that increase revenue, reduce costs, or improve customer service.
Some of the best solutions incorporate business process improvements and quality assurance. For instance, companies are finding they can solve many of their business challenges—like streamlining their call center performance or reducing the time to close their financials—with process improvements rather than expensive new technology. IT-department business analysts can help teams benchmark current processes, analyze potential improvements, recommend the best course of action, and then take measurements to quantify improvements. Similarly, implementing quality assurance programs across the organization can save a great deal of time and money as downstream errors and re-work are minimized. Even if organizations have to go outside for the expertise to do these things, they will realize substantial savings.
Going green is another great way to improve the bottom line—with the added benefit of improving the environment. A dollar saved on recycling, waste reduction, or energy conservation is a dollar that goes directly to the company’s bottom line. IT can do everything that other departments do to go green, but we also have the tools to analyze data for tracking a company’s carbon footprint.
In the end, don’t skimp on your biggest asset—talent. These are the people who know the business and can help transform its processes and systems to become a leaner organization. The downturn is a great time to reinforce skills needed to connect with the business, e.g. business analysis, facilitation, and project management. Look for inexpensive ways to unleash creativity, such as doing brown bag lunches to cross-train staff or generate ideas. Engaging your staff in solutions to make your company more effective is a great way to build morale.