Cost Cutting Tips: It Takes Money to Save Money

If you're cutting costs to improve your bottom-line revenue, don't. Spending money can position your company for long-term cost reduction. Read on for these and other tips on how CIOs are spending during an economic downturn.

By Paul Horowitz
Mon, May 19, 2008

CIO — Not surprisingly, cost is at the top of the CIO's agenda today—as it is for every C-level executive. As the economy slows and companies see revenues decline, cost becomes the lever that businesses can pull on to improve the bottom line. Unfortunately for CIOs, this is a hard lever to pull; in most organizations IT is a fixed cost that, in the short term, doesn't scale downward with a decline in business volume.

For example, if revenues drop in dramatic fashion and customer demand drops transaction volumes from 10,000 to 1,000 transactions, the IT investment largely remains the same. The same systems need to be there to process the transactions, regardless of how many there are; the same people need to patch and maintain those systems, the same electricity is needed to keep the systems on, and so on. People have long commented on the scalability of IT—one system can quickly grow to support a lot of users. It works both ways though—you aren't going to realize a cost savings just because you've scaled down the number of users.

All is not lost, but we are seeing that CIOs need to actually spend money in the short term in order to simplify their IT environments and to position their organizations for long-term cost reduction. It's now all about harmonization, synchronization and consolidation, and that's where we typically see the greatest opportunity for organizations to reap massive savings.

As the old adage goes, "it takes money to make (or in this case, save) money." Across the board we see companies spending money to make their organizations more agile. Agility enables them to respond to changing customer demands or, in the case of a slowing economy, declining customer demand.

Where Are CIOs Spending?

Again, it's all about harmonization, consolidation, rationalization. CIOs are focused on rationalizing the systems they have to make their organizations more agile to change. As IT has grown, we've seen an increase in something we call "IT sprawl"—complex IT environments comprised of a lot of single-purpose systems. For example, it isn't uncommon to see companies that have multiple instances of the same ERP product, each with its own infrastructure and support team and I'm not talking about two or three instances, but hundreds of instances in some cases. It's also not uncommon to see multiple data centers hosting systems that perform a single function or support a single type of business transaction. Sprawl and complexity are strangling agility and impeding cost-reduction efforts. So CIOs are spending money to simplify environments and reduce the sprawl. Consider three of the projects we are currently working on:

  • A global conglomerate is consolidating ERP systems from eight different businesses into a single system.
  • A telecommunications company is consolidating multiple regional billing systems into a single system.
  • A technology company is looking for help developing a strategy to consolidate multiple datacenters into one.

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