Your IT Budget: When Cutting Costs, Look to the Future

CIO — The economic slump has generated pain all around. If it hasn't kicked in for your organization, at some point it will. As we swing into the second half of the year, CIOs are scanning for opportunities to prune expenses. For those who anticipate being asked to cut their IT budgets between now and the end of the year, it's a good time to reflect on our past behavior.

The last time the economy soured, CIOs responded as if the sky were falling. In the ensuing panic, many CIOs cut too much of the wrong things. This time, you need to plan ahead to preserve your organization's ability to grow again when needed.

Then: The Destruction of IT Competency

Think back to the dotcom boom. Remember the Y2K spending hangovers, bloated organizations and data centers everywhere crowded with redundant equipment? IT shops amassed unused software and stacks of yet-to-be-read service and maintenance contracts. Pioneering infrastructure outsourcing deals designed to "save money" were launched with nary a baseline cost analysis. Travel was unconstrained, and everyone's stock was up.

When the bubble burst, IT organizations were sitting ducks. Spending was justifiably slashed—but without contingencies and little strategic thought about what would happen once growth began again. Vendors went out of business, venture capitalists stopped funding new ideas and IT R&D teams were disbanded—putting a damper on innovation. Meanwhile, service levels often plunged and enterprise know-how was pushed out the door without warning, as Just-Do-It outsourcing accelerated.

Finally, as a nasty side effect, IT lost its charm as a career for young people just as the average age in many organizations began to climb. In one large defense industry IT organization I am familiar with, the average of IT employees is older than 50. In a large manufacturing company, only the senior IT staffers are employees; instead, IT careers with the company must be launched and developed inside supplier organizations.

Now: Preserve the Future of IT

In this next wave of cutbacks, we can do better—now that we are armed with experience and hindsight. We know which cuts we made last time—like eliminating investment in R&D—weakened IT's ability to respond when business picked up and CIOs were expected to contribute to innovation.

Let's assume your organization is doing all the right stuff —consolidating servers, data centers, vendor licenses and maintenance agreements; deferring new purchases and outsourcing commodity services under contracts that really do save money.

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