by Peter Bartram

Spending review will force budget cuts for all CIOs

Oct 19, 2010
CareersData CenterFinancial Services Industry

By There are testing times ahead for CIOs. Having survived the credit crunch and the worst of the recession, they might have assumed that there were brighter times ahead. But that was before new Chancellor George Osborne announced that public sector costs had to be cut, in some cases by as much as 40 per cent.

The announcement was terrible news for CIOs working in the public sector and not much better for those in the private. Government cuts will trickle down into the private sector, depressing economic growth and internal budgets. It’s not as though CIOs haven’t been playing their part in corporate cost cutting either.

“Any decent CIO should always be looking to take out cost whilst maintaining or improving the service, not just in an economic downturn,” notes Ian Woosey, group IT and e-commerce director at Carpetright. “I also think it isn’t something you do now and again. It is a constant process of re-evaluation that the whole IT function must embrace. Don’t wait to be told to make savings — you should already be doing it.” See Woosey’s own top 10 IT cost-cutting tips here.

Ageing apps Maggie Miller, who recently stepped down after a long stint as CIO for Warner Music Group, reckons that many CIOs will have already cut any discretionary costs. But they could be storing up difficulties for the future, she argues. “Deep cuts during the recession have meant many organisations have deferred upgrades long past due and are now operating on applications which are already out of support or soon will be,”she warns.

“However, there is a risk that making still further cuts as well as attempting to overcome the upgrade backlog, even if possible, will absorb the senior IT team completely, leaving their functional colleagues even more frustrated at the IT team’s inability to respond rapidly enough to the pent up demand for customer-facing innovation.

“The IT budget is usually a large proportion of company cost and an obvious continuing target for CFOs despite the cuts already made. I think most CIOs will need to look at the IT function differently and challenge previously inviolate assumptions, both their own and those of their colleagues.”

Shared service options Alan Cook, senior manager for corporate information at Cumbria County Council, is one of many CIOs in the public sector now contemplating the government’s target of cutting some department’s expenditure by as much as 40 per cent.

“Whilst we all hope that 40 per cent is just a scare story, it is clear that the savings will be extremely challenging,” he warns. “Local authorities are starting to acknowledge that going it alone is no longer a sensible option. Shared service has been talked about for some time now but the thorny issue of sovereignty and branding has always been one of the major nuts to crack. What I am seeing now is the energy and commitment from leaders to address the issue in a customer-centric way.

“ICT has a big part to play in this, from the rationalisation of the systems we operate down to ensuring that information-sharing protocols are in place. Government Connect opens the door to safe data sharing with police and health across secure networks as well as direct access to information from central government. I see this has two advantages. Sharing of back-office resources is made easier by all of us being on trusted networks, and direct access allows us to reduce the cost of service to the citizen by being able to verify information at the first point of contact without referral.”

Cook sees one saving grace in the need for big cuts. “It’s not all bad by any means. At this size of saving, rotating the deckchairs whilst the ship sinks is not an option. Redesign of service through a fundamental review with all things up for question is what we are embarking upon. This will yield some short-term gains and some long-term gains. We are engaging our partners in this exercise and inviting them to share our pain – after all partnerships are in sickness and in health.”

Squeezing suppliers Allan Paterson is CIO for the Isle of Man government and so not in the direct line of fire for Chancellor Osborne’s cuts. But he has some advice for those who are. The first is to tackle costly overtime. “The mantra is always do things which might affect service out of hours, but perhaps you can do a lot of those during normal working hours with a mix of risk management and of limited service degradation, which can be acceptable if you let users know,” he advises.

“The alternative is to move to a more flexible working-hours arrangement so that key technical folk are working as normal but out of normal hours.”

The second is to invite suppliers to share some of the cost-cutting pain. “Tell your major suppliers you’re looking to cut costs and ask what they can do to help,” he says. “Our policy has been to move major purchases from a capital base to a revenue stream. So a major data centre purchase becomes a revenue stream for a fixed number of years. Through negotiation with the supplier, it may be possible to commit to a longer period, with the next data centre upgrade or refresh being brought in earlier, but at a substantively lower overall revenue stream. If an application software maintenance provider gets a two-year contract instead of a one-year contract, he’ll reduce his prices.”

Even though they have already cut costs, most CIOs could find further savings if they look hard enough. For example, James de Watteville, CIO at insurers RSA, lopped £1m a year off costs by implementing a managed print service which cut the number of devices from 800 to 375.

Neville Howard, a senior partner in Deloitte’s technology integration practice, says that new research by the consultancy shows that three-quarters of CIOs want to cut costs by renegotiating supplier contracts. “About half the organisations we spoke to are targeting a reduction of no more than 10 per cent of their IT budget but expect a disproportionate 30 per cent saving from their vendors – a challenging expectation,” he says.

Michael Nieves, a senior executive in technology consulting at Accenture, says wise CIOs look at the business outcomes their firms want, then track back to the changes needed to achieve them. “They reshape operating models, governance, service architectures, process design and tool enablement,” he says. “The results have been astonishing – 20 to 40 per cent in cost reduction while improving performance,” he says.

Devolved budgets But there is no escaping the harsh reality that CIOs will find themselves under a two-pronged attack from their organisations – to cut costs and improve service delivery. The answer to this conundrum may increasingly be to put the organisation in the driving seat for IT spending decisions, argues Maggie Miller.

“Given the increasing impatience of our colleagues, their willingness to trade functionality for speed and cost, and the increasing availability of bundled BPO and cloud-based services, I think we should give the budget for purchasing these services to the functional leaders who use them. This puts the key cost and benefit decision-making where it belongs, with those responsible for realising the benefits and enables a more informed debate about short-term savings versus longer-term strategic flexibility.”

Pic: brittgowcc2.0