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Learn to Trim IT Costs Strategically

By Galen Gruman

July 01, 2006 — CIO —

Two years ago, when Richard Toole became CIO at pharmacy service provider PharMerica, he faced two very tough challenges: Reduce IT costs and earn the trust of the business. At the time, IT organizations all over the country were facing similar pressures. The U.S. economy was still stumbling after the double blow of 2001’s terrorist attacks and the turn-of-the-century financial scandals. At PharMerica, the pressure was even greater. The IT organization that Toole inherited had little credibility within the organization, and had even less when it came to driving cost savings itself.

"We used to be called the ’helpless desk’ when I joined," recalls Toole.

Toole knew that unless he changed his department’s relationship with the business, IT would always be viewed as a cost center, facing an endless stream of declining budgets dictated by others. So he was determined to demonstrate financial discipline by managing IT strategically, correcting inefficiencies to cut costs before he was asked to.

That strategy paid off, and the trust Toole earned not only allowed him to determine the cuts and their nature but also permitted him newfound say in where the savings he reaped could be redirected.

"I wanted to not just cut costs but also build capacity for the future," he recalls.

First, Toole invested in building a help desk system so he could bring the poorly performing outsourced desk back inside the company. That addressed IT’s most visible failure. He diverted some resources to creating an architectural team so IT would no longer be managed in silos, reducing redundancy while increasing agility. And he invested in increasing business, leadership and developer skills so his staff could deliver better service and applications with an eye toward adopting modern approaches such as service-oriented architecture and Web services.

Toole’s experience is hardly unique. A CIO Executive Council survey in April found that 12 percent of the 51 CIOs interviewed faced what they called "very high" pressure to cut costs, while another 28 percent had "significant" pressure. "In a lot of cases, all the business expects of IT are tactical decisions. It’s viewed as an order-taker, a big cost, just data processing," says Dennis Gaughan, research director for IT governance at AMR Research.

CIOs have already done a great deal of work cutting costs. But all too often the money they’ve saved has disappeared into the maw of the business, never to be seen again—at least not by IT. That’s why CIOs can’t just cut costs; they have to have a strategic plan to cut costs. And they have to leverage that plan to gain or maintain a seat at the organization’s strategic table. In that way, the cuts they make can be transformed from a way of slowly bleeding IT to death to a way of adding value to the company.

 

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