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April 27, 2009

CIOs failing to engage in cost reduction plans

Axe taken to enterprise IT costs endangering services: report

By CBR Staff Writer

Research has found a lack of involvement by CIOs in the IT cost reduction programmes that are underway at most all organisations, suggesting that targets are being set by executives with only a limited understanding of the cost of IT services and the risks involved in tampering with delivery.

Research by Deloitte concludes that 84% of programmes designed to reduce IT costs in large corporations and government departments are reactive, with IT leadership rarely involved in setting cost reduction goals.

In a survey of 60 large UK businesses, 73% of large corporations and government departments were found to be cutting their IT costs, with a further 10% intending to carry out IT cost reduction initiatives in the future. 

Some 50% were working to cut IT operations costs by between 5% and 10% and almost 20% by as much as 20% to 30%. 

Two-thirds plan to see through their initiatives in six months or more, with returns coming over a 1-3 year horizon, the assessment has found.

Neville Howard, the Deloitte partner who led the research, said: “IT departments are scrambling to cut costs but are unwittingly storing up problems for the future. The ability of IT to support the business is in danger of being compromised.”

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Contracts are being renegotiated by three-quarters of the companies polled, and half were planning reductions in contract and permanent staff. 

Half of the survey respondents are planning to cut their contract headcount by between 50% and 100%.  Permanent staff will also be affected, as 66% of organisations aim to cut their IT workforce by more than 10%.

Apparently, 70% of respondents have reviewed their outsourcing strategy in the last 12 months and over a half of all businesses contacted for the study plan more outsourcing of IT and business services.

The consultants say a key focus for IT executives needing to contain costs should be on the management of business demand backed up by a robust internal chargeback scheme.

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