IT Cost Reset

As businesses cut their IT budgets, it's important to find creative ways to cut costs without compromising quality.

In today’s economy, no entity is exempt from cost cutting initiatives, particularly corporate IT departments. This comes as no surprise to CIOs, who are aware of the costly nature of IT. But before your organization begins slashing budgets, remember: your IT department supports virtually every aspect of your business. Reactive, misguided cost-cutting decisions can harm your ability to emerge stronger following tough economic times, rendering you ill-prepared when the upturn comes. With careful planning, you can successfully optimize IT expenses while preserving liquidity and performance today.

What’s the solution? Creative and carefully executed plans for an IT Cost Reset. Keep in mind that IT operating expenses and capital expenses go hand in hand, making them two of the most critical components of protecting business liquidity. In a world of tighter money, that means planning projects effectively and looking for ways to optimize and reduce IT costs. It also means never losing sight of the future -- creating an environment that fosters growth and innovation.

The following steps can help you protect liquidity and identify areas to optimize and reduce costs and capital consumption.

Step 1 -- Know where you’re going

An important part of developing a plan is having an idea of what the outcome should be. One way to accomplish this is to produce an outline of the deliverable before starting the project, so the end goal is always in sight. This outline should include a detailed analysis of the various cost cutting measures along with the ramifications of each.

Step 2 -- Conduct an honest assessment

Can a company be truly honest in assessing its own spending habits? It’s a difficult task for anyone -- personal biases inevitably enter the equation, along with defense of colleagues and particular applications and pet projects. This is where an independent assessment can be invaluable.

While an internal group, such as an internal audit function or a performance team, could be used to conduct such an assessment, they must have no vested interest in the technology base or the people base. There would also have to be a declaration that there would be no resizing of the workforce. An independent assessment could eliminate these hurdles. Because they are uninvolved, a third party could clearly and quickly determine where you are and where you are spending money.

Step 3 -- Virtualize, consolidate and rationalize

As you begin assessing your IT costs, first review your portfolio of technology, including hardware and software. Look at how they could be rationalized and simplified into a more cohesive set of applications to facilitate integration and support of new processes.

On the hardware side, it’s likely you have servers dedicated to particular applications. Review how many servers you have, what their capacities are, and how they are being used. Many servers today can support multiple applications, so if you find yours are underutilized, consider consolidating servers and eliminating excess hardware that is not necessary to support business needs or protect against disasters. This not only reduces your hardware footprint but also reduces costly energy consumption.

The same approach applies to your network and your software. By consolidating and reducing your total number of network servers and routers, you reduce the size of your network without sacrificing efficiency or performance. In terms of software, which extends into every functional area of your business, rationalize your applications portfolio by reviewing variables such as the number of users and the number and type of reports they generate.

Very often, people forget the costs of maintaining applications. For example, let’s say you identify an application used only to generate reports several times per year. Compare that usage with the cost of renewing the software license, which can be steep, and the cost of maintenance, including updating IT skills to keep the application running and integrated to others. With careful rationalization, you can identify other applications in your current portfolio that could perform the same role.

Once you have reviewed these technological areas, the next logical area to analyze is your staff. If your rationalization process results in scaled down servers and applications, you may not require as many staff to maintain IT operations.

Step 4 -- Keep cleaning house

While tough economic conditions or impending crises are often the impetus for companies to launch cost cutting initiatives, they really shouldn’t be. An IT cost reset should be conducted on a regular basis as a part of your regular IT strategy refresh. Think of it like cleaning out your closets -- if you haven’t worn it in years, you can probably throw it away.

With detailed planning and thoughtful analysis of every major area of IT, your organization can protect its liquidity, reduce operating expenses and minimize your capital consumption. It’s a reliable formula that can help you through the downturn and position you to seize the opportunities that are sure to come.

Mike Gorsage is the National Technology Practice Leader for Tatum LLC. Tatum is the nation’s largest executive services firm, providing financial and technology leadership to businesses of any size.

Why IT Projects Fail

Information Technology (IT) project success rates continue to be depressingly low. Experts estimate there is an overwhelming 66 percent failure rate across all IT projects. Insufficient deliverables, budget overruns and missed deadlines all make small and mid-size business owners or managers skeptical of undertaking any new IT project. But if you stand back and look at the root causes, you will see that the real issue often isn’t only the CIO (if the business even has one), the IT staff or even the technology being implemented. It’s the lack of a solid Enterprise Program Management Office (EPMO) approach to managing complex initiatives.

The current failure rate is easy to predict – with no “traffic cop” in place, an IT staff can quickly end up with too many projects (most not contributing to business goals) that overstretch the often limited IT resources. This results in missed budgets, late delivery and even implementations that don’t quite meet user specifications.

What is an EPMO?
The reality for a small business is that it is even more critical to avoid “spinning wheels” by working on the wrong projects or failing to achieve the projects goals. The EPMO oversees the flow of all projects across your business, setting priorities and allocating staff to ensure the
right projects are implemented with the resources necessary to succeed in order to solve the right business problems. In most cases, it also manages the implementation to ensure
quality and on-target/within-budget completion. The unfortunate reality is that very few companies, big or small, currently have an EPMO in place, and even fewer have adopted one successfully. For many small organizations, the challenge is a resource issue. But the
overarching principle of ensuring IT projects support and advance business strategy can be applied to any size business.

Creating an Effective EPMO
One way to create an EPMO is from internal resources. Look at your team to see if you have a strong leader who will be able to make the transition from his or her current role into managing a robust new function. The right person will have political maturity, experience acting in an EPMO role and no other duties. In a small business that lacks the resources to hire new
staff or dedicate existing staff to an EPMO, there is often only one large, strategic project at a time. In this situation, responsibility can be assigned on a rotating basis, so long as the people in rotation have the stature within the organization to be effective. At the end of the day, there
must be one person accountable for actually driving results for each project.

However, if your business is growing rapidly and the IT projects are essential to the business goals, it may be viable to hire experienced consultants to get the office underway and to provide an objective perspective that considers both functional and strategic issues. A consultant in this
role must help the wary top management team understand the value the organization will gain from the move to an EPMO.

In either case, the EPMO must clearly understand and mesh with organizational culture and business strategies to minimize risk and disruption to the operating structure.

Responsibilities of an EPMO
Most EPMOs are responsible for at least the three following areas:

1. IT Alignment and Project Prioritization
The EPMO acts as a counselor to the CIO, or IT manager, ensuring that all IT projects map to business strategy. At the same time, the EPMO must prioritize projects and resources to safeguard against an overstretched staff and unrealistic deadline expectations. The required
time commitment for each project must be weighed against the business value that will be delivered. A project involving massive person-hours needs special treatment and scheduling because of the potential to distract and detract from an organization’s mission.

2. Project Support
The EPMO should provide project management guidance, support and recommendations to managers and staff teams implementing IT projects. This includes methodologies that standardize the implementation process and provide true project management discipline. Even the brightest IT staffers will often fall short in this area because of lack of experience, which is what the EPMO brings to the table.

3. Training and Mentoring
The EPMO must work to develop expertise within the IT staff to continually improve project quality. This includes both professional development training and individual mentoring. A properly-built EPMO function can do a lot to reduce IT costs by streamlining project lifecycles and prioritizing critical projects to align IT with business strategies.

As noted previously, almost 66 percent of IT projects fail. An EPMO is not a magic wand that will make every IT project a success, but it will make sure your best and brightest IT resources are focused on the projects that really are the “must haves.”

Is a CIO a Luxury or a Necessity?

In a world where technology is king, can your organization do without a CIO? It’s a tough question that deserves careful consideration of the strategic value of technology in your business.

How many things can you name in your business or personal life that are not driven in some way by technology? These days, not many. Everything from your car, your healthcare, entertainment and communication -- they’re all technology-based.

In virtually every sector today, dependence on technology is growing. Just look at the recent flurry of national technology positions created by the Obama administration: a Cyber Czar, a National CIO, a Chief Innovation Officer, to name a few. All signs point to an elevation of the strategic value of IT and the need to clearly define the roles of your technology leaders.

CIO's as strategic partners

Does this trend mean you must have a CIO? It all depends on the value your company places on IT. Consider your website, for example. Very likely, it’s the front door to your business, and it’s a tool that didn’t exist only a few years ago. What value does it represent for your organization today? Chances are, it has changed the way you do business. Technology like this eliminates the boundaries of time and distance in interacting with clients and customers -- a significant contribution, to say the least.

For many businesses, technology is a strategic part of the delivery mechanism for client service, the development and delivery of products or meeting other requirements such as regulatory and compliance issues. When this is the case, having a CIO is not a luxury -- it is a necessity.

Today’s CIO's manage much more than systems and data. They must be as business-focused as they are technology-focused. In fact, the most effective CIOs bridge the gap between the two disciplines. Businesses of all sizes can benefit from their leadership, particularly when going through a growth phase or a transition, such as a move from legacy to enterprise systems. Even relatively small firms regularly need to address strategic issues and make sure current initiatives properly align technology to support the business. A CIO can help streamline your systems, avoid costly mistakes and integrate new technology into your business.

Technology: cost or asset?

If your IT leaders do not view technology as a business asset, then you lose sight of the value proposition that technology provides. Technology for technology’s sake does very little for your organization. You start getting highly fragmented from your technology, and your operations become more complex. By refocusing on strategic planning and integrating it into your business, you are better positioned for future growth and opportunities.

A common mistake firms often make is entrusting high-level technology decisions to a “default” CIO, possibly a lower level IT manager or director, who lacks the experience needed to effectively manage IT resources. These individuals tend to focus on interfaces, hardware and networks, rather than how these systems integrate with your overall strategy. This lack of a truly cohesive strategy can prevent an organization from recognizing the benefits, and in some cases new revenue streams, that a solid technology strategy can bring.

The outsourcing alternative

If you have determined that IT is not a strategic part of your business, you probably don’t need a CIO. You could consider outsourcing the majority of technology -- both your infrastructure and applications. But even in doing so, you cannot ignore the value of strategic thinking. You must still assign a senior level business executive to think about the technology implications of business initiatives that your company takes on, particularly as your company grows or needs to consolidate, re-tool, or reset costs.

Outsourcing may help you become more stable. A large commercial real estate firm recently hired an outside firm to investigate IT practices, revealing that a recent investment in server upgrades wasn’t being put to full use, weakening the flawed, outdated infrastructure. Simple help desk requests took weeks or months to rectify, causing technology deficiencies that harmed sales and prevented managers from growing the firm’s business units. The outsourced firm objectively recommended a new IT staff and a fully operational infrastructure. Within a month, the firm lowered technology costs and cut help desk responses from weeks to just hours or minutes. Once technology was aligned with the overall business strategy of the firm, the business stabilized, frustrations faded, and focus returned to clients.

When handled properly, outsourcing can help you achieve greater economies of scale within your budgets. In fact, if your budget cannot handle a full-time executive, you might even consider buying a portion of time from a consultant with multiple clients, giving you the high-level guidance you need without the heavy price tag.

There is also a downside to outsourcing. It may be difficult to decipher whether a company is advising you on what’s best for your business or what will give them the highest margins, causing a natural conflict of interest. Conducting thorough research on reputation in your industry and prior achievements, along with a healthy dose of skepticism, can help you identify a possible conflict.

Whether or not you outsource or bring on a CIO, consider how your IT efforts are positioning you for the future. Some businesses thrive without a fully functional CIO, while others seek outside guidance to develop systems that support business strategy. Whatever your choice may be, don’t relegate your infrastructure to another line item on the balance sheet. Take a look at your technology platform and make sure you have the resources in place to gain competitive advantage and prepare for what’s to come.

Five Mistakes CFOs Need to Avoid in a Volatile Economy

MISTAKE #1: THINKING THIS IS JUST A NORMAL DOWNTURN IN THE BUSINESS CYCLE.
It is not. With the credit markets virtually frozen, with no commercial paper market, and with the value of bank assets unknown we are in one of the most serious credit crises of our lifetime. Resolution of the credit shut-down certainly will not come from our elected leaders! This cycle
is going to take the collective brain power of the country’s financial and business leaders to solve. The Fed will be part of the solution, but it is going to take a long time for the consumer to get back into the market and begin spending again.

MISTAKE #2: NOT SEEKING OBJECTIVE ADVICE
Remember the first point: this is not a normal cycle; now is the time to get objective advice rather than assume past techniques will work when the rules of engagement have shifted. How long can you continue your current course with no external funding? If the time line is short – you need to take action now! The ability of businesses to borrow for needs as simple as working capital is severely restricted. If you are planning to fi nance your inventory for the Christmas season – you will need to consider an alternate plan immediately. Proactively brainstorm with
other business leaders and advisors with proven experience in tight situations, and be prepared to negotiate.

MISTAKE #3: OVERREACTING… OR UNDER-REACTING
Don’t rush into major changes without projecting the implication on your business model. Conversely, this is not a time to think that because business cycles always turn around, that you can sit back and wait for the rebound. Challenge assumptions, create scenarios and think through the consequences.

MISTAKE #4: POSTPONING “COLLECTING CASH”
With no cash moving in the credit market, the ability of customers to pay bills is decreasing. If it hasn’t already, at some point this problem will reach your customers. The most important commodity is cash, and now is the time when you should be making sure that all accounts receivable are collected in a timely manner. Once a customer gets behind, he will not be able to borrow money to catch up and you will effectively be providing goods and services for free.

MISTAKE #5: THINKING THAT YOUR STAFF IS NOT WATCHING YOUR EVERY MOVE
Your staff is looking for guidance from those they respect. The economic stress is heightened by the national stress of watching the increasingly negative performances on the national stage. Communicate with your organization and provide as much calming infl uence as possible through your words and actions. Constructive discussion will allay fears and help increase productivity. Don’t forget: the unknown creates stress and anxiety that leadership must attempt to minimize.

WHAT NEXT?
This is a time to demonstrate true leadership by learning from history and recognizing the need to adopt a new perspective. Tap into the intellectual capital of seasoned leaders to be sure you understand dynamics and focus on the most important priorities.