Where Else Are CIOs Spending? Shared Service Centers, Outsourcing and Offshoring

Shared service centers are an extension of consolidation and rationalization. Once rationalized, CIOs are taking their consolidated systems and strategically sourcing them to lower their unit costs. The first step—shared service centers—seeks to bring together IT or business processes to achieve economies of scale. Once combined, companies can look to automate or otherwise improve the process to make it more effective or cheaper. Typically this goes hand in hand with the second step—outsourcing and offshoring.

Strategically find partners that you can work with to reduce the unit cost of each transaction. Although the weakened US dollar and strengthening of stalwart outsourcing partners such as India have decreased the potential savings, there is still plenty of room for significant expense improvement.

What Does the Downturn Mean for Security Spending?

Periods of economic downturn typically correlate with higher crime rates. Whether this trend will apply to high-tech crime has yet to be seen—we haven't been through a recession yet where we depended on IT as much as we do today. One thing is for certain, though. Recessions mean layoffs and layoffs upset employees. This means security will be in the limelight as layoffs throughout the business increase the risk of insider threats. Employees who have been entrusted with access to customer information, computer systems, etc., may find themselves betrayed and, while the majority of employees wouldn't think to do something malicious, we know that it only takes one bad apple. One employee that takes a list of customers' social security numbers home and posts them in a chat room, or one systems administrator that installs a virus on a key computer system can have dire effects on a business.

Where Have CIOs Cut Back?

CIOs would love to be able to tell you that they're cutting back the "nice-to-have" projects and just focusing their efforts on the mandatory ones. In reality, they need to be very careful. Short-term cost cutting is likely to cut more muscle than fat—a recent study found that 87 percent of the IT budget is used just to keep the lights on; the other 13 percent just keeps pace with changing business requirements. Time and time again we've seen companies pursue cost reduction haphazardly and the short-term payoff is quickly offset by loss of business functionality or higher repair costs.

So what do we see? CIOs are scrutinizing their project portfolio to find those few projects that do not provide strong and immediate business benefits—those that might be a cash drain over the next 8 to 12 months—and either putting them on the back burner or extending their time lines to reduce the short-term cash/profit impact.

Paul Horowitz is a senior partner in the PricewaterhouseCoopers Advisory practice with expertise in financial and IT management. Paul has more than 26 years of experience helping organizations manage large and complex technology implementations.