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When There is Nothing Else Left Than Cutting Costs

By Andrea Di Maio | September 29, 2010 | 1 Comment


I have visited five European countries in the last two weeks, meeting over 50 clients, and almost every single conversation has been either about how to reduce costs or about how to deal with specific technical or organizational challenges in a cost-constrained environment.

This is not totally new, as several jurisdictions have been under pressure to reduce their administrative costs for quite some time now. However what is new is the magnitude of the cuts and the timeframe for expected savings. I have heard numbers between 20 and 40 per cent and timeframes of a year or less.It is fair to say that most CIOs and IT leaders are simply unprepared to deal with this.

In some cases there is very little margin left within the IT organization, which has been consolidated and/or outsourced over the last few years. Also, the push toward further sharing and consolidation is likely to lead to diminishing returns in places where corporate services are already centralized.

Frankly speaking, some of these cuts are unrealistic and will not be possible unless damaging transformation programs, reducing service levels, deferring costs to the future (when those costs will probably be much higher). While the previous wave of cost cutting has been about (1) reducing IT costs and (2) using IT to reduce operational costs, the future is about achieving both and at a scale that is unprecedented.

The degrees of freedom for government organizations are rather limited though. For instance, renegotiating with vendors the entire portfolio of their activities with government – like the UK is doing – does not only take strong central authority, but may not deliver huge savings when government organizations are locked into the services and knowledge provided by those vendors. Canceling or delaying big ticket projects is not always possible, because of political pressures and the risk of losing the remaining budget. Also, pulling the brakes on public spending may have adverse impact on the viability of key national vendors, that may either incur in financial trouble or become acquisition targets for foreign and offshore providers.

We are seeing these days what the dramatic cost cutting decisions taken by governments across Europe are causing: strikes, riots in the streets, protests all over the place. It would be simplistic to believe that IT-related cost cuts of the magnitude that is being discussed will not cause confusion and disrupt service levels and government processes. This is not for the faint of heart, and requires courage in exploring radical cost containment options, challenging the common wisdom and taking risks that few government CIOs have taken before.

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  • Agree with the likely impact of the extreme cost cutting phenomenon. Arguably there could be real potential of that magnitude in some cases. In those cases steady approach to lower costs over years would tend to yield better longer term results than achieving this to met this FY corporate goals