Pruning or Slash and Burn? IT Cost-Cutting in 2009
Is Strategic IT prepared to see the forest for the trees? Let’s face it: A climate of doom and gloom has spread across nearly all sectors of the economy. From Wall Street to Main Street to the boardroom to the data center, tough economic times are driving a fundamental re-thinking of 2009 strategies and investment plans.
The bottom-line: companies are forecasting a double whammy of substantially less revenue and tighter credit in the year ahead. As a result, you’ve got to lower investment on strategic initiatives and increase scrutiny on your remaining projects.
While this may seem like a severe hardship and a new level of inquiry for budget owners, it also opens up leadership opportunities for IT strategists and enterprise architects. The analysis and decision-making tools you’ve implemented over the last several years are now essential as you need to quickly pinpoint and differentiate between areas of the business to be slashed, pruned, or the ones that require care and feeding.
Between 2003 and 2008, there was an unprecedented amount of investment in organizing IT data. Research from Architecture & Governance Magazine points to more than $2 billion spent in software and services deployed by Global 2000 IT organizations to restructure, report-on and manage their business and IT architectures during that timeframe1. For many, this insightful instrumentation of IT can now be purposed to drive strategic decision-making in an extraordinary fashion.
How ready are you to influence enterprise strategy? Consider the following questions: (1= not likely, 3 = somewhat likely, 5 = very likely)
We have an accurate understanding of the current state of our IT architecture
We have documented the majority of our business processes
We can provide an analysis of the connections between business processes and the IT architecture, and understand the implications of making changes
We have future-state architecture plan for 2009 that has been approved at the executive level
We have implemented a technology standardization and alignment process that is effectively controlling rogue technology investments
We can identify all spending requests as discretionary or non-discretionary, and have the ability to keep our analysis process aligned over time.
Take a look at your cumulative score on this assessment for a quick set of guidelines on how you can best approach the looming budgetary crisis:
Score less than 15: PREPARE FOR SLASH AND BURN: Immature systems necessitate basic analysis.
Score between 15 and 25: OPPORTUNITY TO GUIDE THE PRUNING: Relative visibility will provide a level of insight to the business.
Score greater than 25: KNOWING WHAT TO NURTURE: A granular understanding of business impact will help your organization thrive.
Preparing for Slash and Burn
If you fall into this immature state of readiness, it is likely that decisions about the future of IT, business strategies, budget allocations and cost cutting priorities are already being made without substantial input from the IT organization.
While it is unlikely that you will gain a seat at the table in the near term, there are several proactive strategies that you can implement immediately to serve as a backstop for the coming questions about IT effectiveness.
- Get proactive: Send out IT emissaries to the lines of business leadership and ask them what key questions they need to have answered in the next 90 days.
- Triage data needs: Find common data requirements from these questions and identify a basic architectural model that relates those data elements to each other.
- Fill in the cost picture: Work with IT finance to place a cost estimate on key assets and processes that lie along these relationship lines,
- Prepare for Impact (analysis): Your goal should be to explain how different scenarios being contemplated will impact IT in different ways to guide decision making to a quantifiable decision, rather than a random one.
Guide the Pruning
If your organization is in a relative state of information maturity, the opportunity exists to fend off the worst of the cost cutting strategies. You can provide rational guidance to the business decision-makers so they can make good, granular decisions.
Move teams into action that can produce a relatively accurate enterprise architectural view, relating key business processes to IT services. Get them to take the following actions.
- Find the Joins: Get copies of key reports that the business uses for decision-making. Figure out where that data relates to the architecture you have access to and where needed, augment your architecture to include the data sets that cover those reports.
- Dive deep on costs: The best way to demonstrate value to the business is by providing them with insight supported by real financial facts. Now is the time to work with the CFO’s office to make sure finance assertions and models are accurate.
- Create scenarios: For each likely business scenario, think through more than one implementation of IT and business processes to support it. Conduct impact analyses on each.
- Provide choices: Be prepared to offer multiple strategies to the business as they assess which cost reduction measures to make. The business will be appreciative, also, if you put your analysis team on stand-by during meetings and attempt to work through scenarios in real time.
Know What To Nurture
If your organization has a highly mature IT strategy and architecture capabilities, the downturn is an opportunity for you to lead your company in a potentially disruptive fashion.
According to Bill Cason, Chief Technology Officer of Troux Technologies, leading companies are now using alignment capabilities to drive disruptive innovation. “In the ideal scenario, the job of the IT strategist is to lead the business so that there is an assurance of alignment between discretionary and non-discretionary spending within IT,” said Cason. “This can then drive new strategic initiatives and capabilities for the business that are optimized for IT capability.”
With a capable and responsible analysis and alignment toolset, consider the following strategies:
- Tie total costs to real business capabilities: Review existing business models and work with LOB and CFO representatives to ensure that all costs are accounted for in those models.
- Forecast multiple-year ROI models for each of the potential business strategies being considered: Solicit all strategies under consideration and develop multi-year TCO and ROI models for each scenario. Consider the enterprise hurdle rate in your calculations.
- Identify supply-chain/industry/ competitor inefficiencies that business can capitalize on: A high-functioning organization can use the current disruption to gain market-share and a stronger position relative to the value-chain. Consider modeling your enterprise architecture to include these extended networks.
While the immediate road ahead looks to pose substantial challenges to the business community, knowing where your IT organization stands, relative to the kinds of value you can provide, will put you in the best possible position to help them see the forest for the trees.
by Jonas Lamis, the founding editor of Architecture and Governance Magazine.
(1) Includes investments in software, services, hardware and maintenance to support CMDB, BPM and EA projects.