Managing IT departments in a downturn

With the severity of recent global events throwing business into a state of flux, the role of CIO has never been more unpredictable.

Addressing the CIO 2002 Conference in Sydney in March, Rowden Simon, managing director of IT advisory firm Compass Management Consulting, said there was a general feeling of instability among CIOs. Fuelling that uncertainty, he said, is a wave of global events, namely the dot-com fallout over the past 18 months, the US recession, September 11 and Enron's bankruptcy.

Simon claims a global economic slump is also driving companies' boards to view the role of the CIO with "suspicion". With companies wary of making big-ticket technology investments in a downturn of this severity, business for the CIO is even tougher now. "The CIO is solely looked upon now to drive down costs and increase business growth through innovative use of technology," he said.

Ole Elsaesser, CIO of CSR Limited, disagreed with Simon: "I do not feel the CIO's role is viewed with suspicion -- at least not at CSR."

"We've worked very hard to build credibility and establish that we are effectively controlling costs and driving IT strategy in a direction that adds value for CSR.

"Whether in a strong or weak economy, the key is to deliver IT services that the business views as having value. We've achieved this by closely aligning the IT service delivery with business requirements by establishing cost credibility through benchmarking and by having a high level of transparency in charges to the businesses," Elsaesser said.

Meanwhile, Simon said senior executives from all regions showed a marked level of caution with CRM and ERP technology spending in particular, due to a recent spate of disasters tied to those projects. Most had an erratic record in producing any ROI, he added.

However, he forecasts significant investment activity over the next few years in network and data security and also in physical security -- counter measures against what he called "the terrible threat to business security" following the US terrorist attacks.

Simon said Australia was a particularly "unpredictable" market compared to other regions -- like North America and Europe -- more deeply affected by the terror attacks. While Australia did not feel the full impact of the terrorist event, it was at the mercy of economic powers like the US, he said.

According to a Compass World IT Census for 2002, the most pressing concern for CIOs is how to establish "true costs" in the IT framework. That is, quantifying the cost of each piece of technology in an organisation, then working out how each asset could increase business growth and profitability.

"True costs are not about total IT spend in an organisation," Simon said.

The first way to cut IT costs in a flat economy was to establish true costs, then eliminate any budget items which could realistically be cut from the bottom up, he said.

Simon claimed the typical approach was to cut costs across the board using a "20 per cent strategy" -- first cutting things like training, help desk, temporary staff and consultants.

However, this was usually the wrong tack to take in difficult conditions, as opportunities for consolidation could be found in keeping staff well trained and building a strong central help desk, thus helping to cope with user demand and IT employee workload more efficiently, according to Simon. Illustrating the point, he said the case for a strong help desk in tough times was clear based on Compass research indicating the average $75,000 IT employee equates to a cost of $637,000 per 1000 desktops.

Also essential to cutting IT costs was consolidating the power of individual assets like mid-range servers. Simon said doubling the power of a mid-range system can reduce operating costs by 75 per cent. "It's always easier to manage a few servers than a lot," he said.

Businesses can also temper costs by reviewing their sourcing options, the smart approach being to renegotiate contracts through regular price and value reviews or considering cheaper offshore arrangements.

Overall, the ability to understand the full scope of IT within the organisation is only possible with a metrics management program. "Manage perception with reality," Compass' Simon said, recommending companies have an IT report card to measure and publish a concise and balanced set of key performance indicators on their IT assets.

Commenting on Compass' claim of a renewed management focus on cutting IT costs, Elsaesser said: "Any CIO who waits until a flat economy to focus on costs and value should be looking over [their] shoulder. Running an IT department is no different from running any other kind of business - all expenditures, operating or capital, must always add value".

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