Recently in Economic Uncertainty Category

It seems inevitable that IT budgets will face greater scrutiny as the global economy comes into question. After all, if increasing corporate costs and slowing or uncertain spending impacts revenue, then budget cuts will become a fact of life in the quest for profitability.

Proven cost-reducing IT measures (i.e. layoffs and investment cuts) will be no-doubt be adopted, while less traditional areas like SaaS, virtualisation and outsourcing should all flourish even more from this turn of events. Indeed in its recent “The State Of IT Services: 2008”, Forrester reported that while budgets have been slashed, demand for outsourced services remained high.

However IT is done, whether in-house, in the cloud or otherwise, it needs to be done with minimal cost. But while hardware and software costs have consistently fallen throughout ‘IT history’, operational costs like salaries have consistently increased. One benefit of business service management, is that it automates time-consuming processes like root cause analysis and it can project the potential effects of change on IT services. The attraction of such automation becomes particularly apparent when considering the looming squeeze on budgets as it presents a clear way of circumnavigating the predicament.

What is clear about this period of economic uncertainty is that businesses are demanding even more transparency over IT, both in-house and outsourced and IT downtime is likely to be scrutinised at a far higher level for far more firms than in the past. With IT downtime presenting potentially business-threatening cost, IT operations will increasingly find themselves mandated to take a more strategic approach to preventing downtime.

Jason Stamper’s recent blog post “10 best technologies to beat the downturn,” highlighted some ideas for IT professionals to streamline budgets by using affordable technology rather than cutting back on IT resources. The economic downturn potentially represents a great threat to IT -- yet to businesses which are dependent on IT (and this is increasingly the case); any unexpected or ill-conceived cuts to IT resources may have a profound and adverse impact on IT services.

Business survival, particularly in certain sectors, will necessitate cost-reduction; one of the quickest ways of realising such an objective is by reducing workforce. This puts a greater strain not only on the people who remain, but also on the quality of the IT services. Because of the business’ increased dependence on IT, a drop in service quality in today’s environment will likely result in more severe business impacts than in the past.

Consequently, many quick cost-cutting fixes to the ICT infrastructure may prove more attractive than worthwhile. To truly understand how to reduce cost, IT professionals need to change their approach more fundamentally and adopt a service perspective. Rather than buying seemingly cheaper hardware/software for their network or laying off staff, IT leaders need to focus on how the different parts of IT relate to service and what value those services derive so that the consequences of decisions, particularly in terms of business impact and potential risk to quality of service are always thoroughly understood.

Only then will they be in a position to identify the areas worth investing in and reduce spending to others accordingly. To put it simply, when they understand what tools they have in the box and can map the dependencies of their IT machine, they will be well placed to be that ever-beneficial step ahead of the CFO. As one author opined, “Careful With That (IT) Axe, CFO!”

- Jim

In 2001, when the tech bubble burst, I had just graduated with a Computer Science degree, and was looking for work. To say that things weren’t exactly peachy back then is an understatement. Luckily for me I happened on an interview with a company that was privately funded and which understood that in times of recession some excess fat needs to be trimmed – but not the muscle that drives a company. That company went on to produce very strong results less than a year later due to a superior product – a direct result of continuing to invest in hiring exceptional talent while avoiding the overindulgent tendencies of richer times.

Unfortunately in times of economic uncertainty such wisdom is uncommon. With all the recent talk about a recession being around the corner there is a lot of fear in the tech industry, especially among startups which are struggling to compete with new attractants for venture capital such as the likes of alternative energy exploration. The problem with this approach is that when the economy slows or stalls, some corporations think only of near-term. This usually leads to cost cutting across the board, but most prevalently in initiatives such as technology, software and IT staff that are not perceived as necessarily contributing directly to the bottom line.

This is a mistake for the simple reason that these cuts inevitably lead to a less motivated workforce that finds it self stretched beyond its means as a result of trying to maintain the same level of service, less budget and therefore with less tools and less people.

Technology is a key driver of business these days, so dramatically cutting IT budgets can actually cost more in the long-term than the benefit of savings achieved in the short-term. This long term loss manifests itself in many ways, but most immediately in the loss of knowledgeable IT staff and the shaky infrastructure that accompanies a departure from IT maintenance.

This takes us back to the title of this post. In times of financial uncertainty it is necessary to tighten belts and trim some fat off an organization. This can be achieved by cutting back on unnecessary items like kickoff meetings in exotic locations, business class travel when coach suffices and so on. But to trim the muscle that drives an organization by failing to maintain infrastructure and letting go qualified staff that will only need to be rehired and retrained once the economy turns around is a long term mistake.

If we have learned anything from the first tech bubble, it is that these are the times to consider projects like automation, integration and federation, as some of the highest costs of running an IT reliant company are in the high levels of obsolescence that accompany the good times. Corporations need to use a slowdown in the economy to their advantage and build a stronger, more resilient, infrastructure that will help them overtake the competition when the economy turns around.

-- Jonathan