In times of economic adversity, conventional wisdom calls for conserving cash and capital. Firms have amassed record amounts of cash as governments face deep cuts in the fourth year of five-year plans. Leaders know that the future requires re-imaging the enterprise rather than repeated waves of belt tightening. Nowhere is this more evident than in IT.
Cutting IT is not the same as cutting other functions. IT spending is peculiar because it’s indirect. Properly managed, IT spending changes performance disproportionality more than it costs. IT is particular to your firm resisting ‘best practice’ or ‘across the board cuts’. This is not to say that IT budgets cannot be cut, but that blindly cutting IT saves pennies but locks in a legacy of inefficiencies sealed in silicon.
Maximizing the value of IT requires changing attitudes from administering an IT budget to applying IT to amplify business performance. Leaders amplify their organization by concentrating on IT productivity’s numerator – value created rather than just denominator cost. This helps them avoid the fantasy of ‘more for less’ by doing the following:
- Focusing on few projects. Nothing focuses managers like a crisis and focusing IT on fewer, more important things creates results now rather than dissipating them by spreading resources like peanut butter.
- Shortening planning, project and governance cycle times to keep IT’s limited resources concentrated on the most important things and management agile to respond to change.
- Changing IT’s cost structure rather than the budgeted spend by adopting cloud and other light weight technologies, dropping underused systems, software and hardware to reduce the per unit cost of IT.
- Measuring IT value based on changes in business performance rather than costs. IT has no value and no place in the budget if it does not raise performance.
- Managing IT productivity not projects. Changing the way IT works to be more productive rather than choking off IT resources and expecting IT to muddle through.
- Stopping demand management and starting benefits realization. Do not deny yourself the ability to improve, rather concentrate your attention on realizing improvements.
These steps lead to technology that amplifies business performance. Sure it is easier to administer an IT budget but all that gets you is fewer activities with even less results. It is better to think small about IT, in terms of how it can have short, sharp and focused impact rather simply lightening the weight of an already blunt IT organization.
Here is a test of whether you are managing IT budgets or managing business results. The average IT organization spends 70% of its budget on running the business and 30% on changing the business. Your CIO is able to cut the ‘run’ component by 10%, moving from 70% to 63%, what would you do with that money? Do you save it? Or do you re-invest it in change by increasing change spending by 23% moving it from 30% to 37% of the budget?
It is not a test of IT. Rather it is a test of your confidence in management and their ability to realize business benefits. You take the 7% savings if you have no confidence in your management otherwise you know that the 23% increase makes sense because you can manage the business benefits.
It is natural to reduce budgeted cost in the face of a downturn. That approach works best when costs are directly tied to business activity – sell less and you need to make less. IT is connected to the cost structure of your operations. Treat it as another administrative expense and you degrade performance across the board. Combine limited IT resources with strong benefits realization and you amplify business performance and organization wide results. The choice is yours.
Note this post appeared as an interview in the Financial Times.