This is the second in a series of posts on managing IT costs during challenging economic conditions. Part One focused on making sure to understand what the business strategy is so that cost decisions that IT makes support both the short-term and long-term goals. This post will focus on a methodology to rationalize IT capabilities and services in a way that provides support for the business while costs are reduced.
Risk of Cutting the Wrong Things
These days, IT services are required for most businesses to operate. Poor reliability from e-mail or an ERP system can mean that important communications from and to customers are missed or sales orders and invoices are not processed timely and accurately. When times are challenging, the need to rely on automation can increase because the ability to deploy people is limited or even reducing. So, a key part of the analysis on what IT costs to reduce must first focus on what capabilities are absolutely critical to operate the business. Cutting costs in IT only to create inefficiencies elsewhere is not going to achieve the goal of running the business leaner.
Resistance to Cutting the Right Things
Companies that have grown quickly and, especially through merger and acquisition often have a diverse set of systems in use. In some cases, consolidation of systems was perceived as too costly relative to the benefits, especially when dollars available for investment are being used to continue growing the business. In other cases, the local managers and users of systems may not want to change from the system they feel has made them successful. As economic conditions become hard, having a larger number of systems makes it hard to reduce costs because specialized services or staff are needed to support each.
What to Do? Make T-I-M-E to Choose Wisely
Given the trade-offs that are outlined above, IT leaders need to be able to analyze and describe options in a way that provides business context. The number and complexity of systems used to run the business drive cost factors such as number of IT staff, servers, infrastructure, etc. So, what I have seen work well is to perform what is called a TIME Analysis to review the application portfolio.
TIME stands for Tolerate, Invest, Migrate, and Eliminate. The idea is to classify the business systems into strategic categories based on value to the company, cost to operate, and risk. While some of this data is objectively measurable, there will be a subjective component.
The process becomes interesting when the various systems are plotted onto the diagram and, specifically, the number of systems that do similar things congregate in the Migrate box. It becomes a much more business oriented conversation when it becomes clear what costs are associated with maintaining systems that can be eliminated or replaced.
How does this help in tough times?
Knowing which systems can be eliminated or replaced makes it easy to be confident in cutting software maintenance contracts, reducing user licensing, reducing support services/headcount, and not lifecycling hardware that operates these systems. Resistance to cutting will be low and the risk that the business will be negatively impacted is managed.
Knowing which systems are critical to your future makes it easier to focus the remaining scarce resources on the areas that provide core value. The risk of cutting the wrong things is reduced. And, the company can be positioned to invest when business conditions improve.
The next post will focus on specific techniques to cutting costs, including options for managing staffing costs. More to come!