In LinkedIn Answers this week, Peter B. Giblett raised the question, “Cost effective IT? How is your business adapting to changing economic circumstances?”
“Recently, CIO Insight stated that 2009 budgets are between 3 per cent and 10 per cent less than they were in 2008 (ironically, down an average of 5 per cent on 2007). In addition, license costs for your applications are rising. A friend recently told me his ERP solution provider increased prices by 15 per cent, yet his budget is down 7.5 per cent. With these budgetary constraints, there is still a heavy demand for new applications. How are you adapting to the challenge? Are you continuing to deploy new solutions? How much more are you spending on Business Intelligence?” Giblett asks.
“The easiest solution to make up the missing dollars for most organizations is for both IT and the business to assume more risks,” answers Michel Labelle, manager of IT Infrastructure and Operations at TSI Terminal Systems Inc.
“Do you really need 7/24 maintenance on all your switches or infrastructure pieces? Do you need a hot DR site or can you go to a cold or internal? Can you get by with slower response times on the help desk or in your hardware replacement program?”
The Vancouver-based container terminal operator is “continuing to implement all scheduled projects,” but “non-committed capital projects are delayed unless a demonstrable (hard) ROI of six months or less is attached,” Labelle writes.
Web Industries Inc. had to delay the full implementation of their WAN, according to Josh Chernin, general manager of operations in Boston. “But we are spending more on SEO and on beefing up our use and our configurations on Salesforce.com,” he says.
Play hardball with your software vendor, suggests Michael Meissner, chairman of San Francisco-based IT solutions provider Solutions Architects Inc. “Tell your software vendor you won’t upgrade this year unless they can provide ‘financial incentive’ to do so,’” he writes.
Hein Hanssen, senior consultant at Fagro Consultancy in The Netherlands, suggests avoiding proprietary software and embracing open source.
“The main reason you suffer from increasing (licensing) costs is probably that you have reached a point where you suffer from vendor lock-in caused by proprietary software,” writes Hanssen. “The vendors have you in your grip: you can’t easily switch. You should have considered this before the current crisis.”
Proprietary software “should be avoided as much as possible,” according to Hanssen. “Also, avoid as much as possible software that only runs on a single platform. Use as much multi-platform software as you can…Try to get as much software based on open standards and the open source idea. This, combined with all other possible solutions, will prove to be a real cost saver.”
Many companies are now evaluating open source, says business and technology consultant Chip Nickolett.
“What I’ve been seeing at many of our customers and prospects are budgets that are down 5 per cent to 10 per cent, and often staff levels that are down 10 per cent or more…With proprietary software vendors raising rates 15 per cent of more, many of those companies are now seriously considering open source software,” he writes.
Considering open source software will bring benefits from two directions, according to Nickolett.
“Several of the CIOs that I have spoken with have mentioned that once they implement a small system (maybe only 10 per cent of their total IT footprint), their other vendors begin to take them seriously and now they have negotiating leverage. So they get both direct and indirect benefits from those efforts,” he explains.
Now is “the perfect time” to implement a cost-effective BI system that helps “with business optimization and the identification of cost savings,” suggests Nickolett. “The system would really need to have a 12 month ROI in order to build a compelling business case that would make it worth taking the risk.”
Payroll is “the hardest part, but the biggest save,” according to IT consultant Roger Lasswell.
“My friend on the East coast took a payroll deduction as an IT manager to keep his job. It was fairly presented to him and it was his option…Your best answer is don’t be afraid to think out of the box when it comes to your IT cost and what used to be unorthodox in the past might be a viable solution today,” he writes.
Before organizations increase or reduce IT budgets, they should introspect and answer a few questions first, replies Seshagiri Rao Vaidyula, senior architect and practice lead, Risk and Compliance at Wipro Ltd.
“What is the incremental cost of decreasing the IT budget? My opinion: IT is only a platform to carry out the business operations. If IT is not available, most of the operations are carried out manually. Hence, organizations should take into account the incremental increase in other costs while reducing IT budget,” Vaidyula points out.
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