The study found that few companies, about one-third, use tactics such as charge backs, service catalogs, or IT portfolio management to reduce costs, despite the fact that these techniques can drive real savings. “Big companies with their reduced budgets are taking a close look at their portfolios to understand what is critical to IT success,” said Ackerman.
This research also reinforces findings from a previous Hackett study on IT Business Value Management that identified top performing IT organization’s ability to directly link its discretionary budget to the highest priority business objectives of the enterprise―in and of itself, the most effective form of demand management.
The final strategy, discretionary cuts, which generally involve mandated budget and staff reductions without underlying process improvement or rationalization, is widely used by most companies. But it is also the riskiest of the three approaches. Unless process improvements are an integrated part of any discretionary cuts, Hackett warns that they are likely to result in degraded service levels and reduced overall effectiveness. It can also be very challenging to sustain discretionary cuts on an ongoing basis, the research found, as many companies quickly find that they have very little fat left to trim.
To this end, as in past downturns, companies are turning to outsourcing as a way to augment staff so they will be ready when the recovery happens, said Hackett’s Managing Director Mike Atwood.
“If I set myself up properly with the right organization then I can depend on an outsourcer to have the capabilities I need when demand comes back”―provided the initial SLAs and contracts are done right in the first place. If not, you will still get your labor arbitrage but you won’t be any better off when you need to add staff to support the business when it begins to grow again.
On a more positive note, IT has been delivering on its productivity promise, said Ackerman. As cuts have come down, service levels have remain consistent or improved. This is due in large part to smart investments in virtualization and consolidation, for example, in past years finally bearing fruit. It also points to lesson-learned from the early part of the decade; to wit, technology investments have to benefit the business or they are not investments but expenses.
“(IT) have reduced their budgets (in the first quarter of 09), they have reduced their investment, yet their still in many ways meeting the needs of the bus,” concluded Ackerman.