This chapter defines the potential for savings according to existing IT business inefficiency; the greater the inefficiencies, the greater the cut. The first solution for companies with little inefficiency including those on the path of pennies or the path of profits should cut 10-20% of costs. With little to cut, reduction can be handled from a technological approach with little input from business groups. This includes increased efficiency in operations, re-negotiation of contracts, limited off-shoring, and re-examination of labor. The next group, where most reside, lies between the path of profits problems and needs to cut spending by 20 to 40%. Unlike the first, business groups should be combined with IT staff in the cost analysis because more of the expenses cut will come from daily operations in which business groups have the most experience. Combining business units and IT staff could create conflict where some units don’t want their budgets cut, but management should emphasize that spending less will benefit the entire company. The final group includes companies burdened with a 40% or more cut because they’ve let spending get out of control for many years. This group has the same savings opportunities as the former groups, but unlike the rest, this group has to change almost everything! With most people resistant to any change, this is a tough issue to overcome.
Next, the chapter introduces a three step process to cutting costs effectively. First, IT groups examine capacity to examine ways to maximize current technologies. I see this step as a way to cut costs in the long run, but in the short run, this step could incur possible costs such as re-training, re-programming, etc. The second step, capital, includes business units and IT groups reaching agreement on which technologies address business needs. This creates conflict as favorite applications that don’t generate return will be challenged. Hopefully, a fair compromise can be reached because I see resentment stemming from this step if a unit’s favorite technology is cut. If departmental mindsets really create a problem, management could create a reward system based on department savings. The amount of money saved through reduced IT spending could be partially re-imbursed to employees in the department. Money would be spent on rewards, but amount spent would be much less than the amount saved by providing employees an incentive. Clear goals with deadlines and feedback are beneficial as well. The final step, cleverness, is led by business units focusing on return and whether a technology provides benefits. I am sure companies commonly used ROI and sales during this step, but evaluation must include measures of customer satisfaction since they are such a large provider of ROI and sales.
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2 comments:
I feel there are many factors to consider when trying to cut cost with existing IT assets. For many companies they were caught up in the "newer the better" concept and over invested in technology that had no use within their business strategy. I think the first step a company needs to make when considering a path to profits is an evaluation of their current assets and decide which one are benefiting the company and which ones are costing the company. I think this step will give the company at least a starting step of how to improve their cost efficency.
I agree that combining business units and IT staff could create conflict where some units don’t want their budgets cut; hence, management should emphasize that spending less will benefit the entire company. It is pretty hard for managers to solve this problems. IT stuff surly don't want to decrease their budget to develop the new IT; however, the overspending will affect the company's profit. Therefore, money should be spent on rewards.
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