Another notch on the belt

As the credit crunch continues, IT managers are under increasing pressure to reduce budgets, with projects involving relatively unproven technology likely to be first for the chop.

“IT budgets haven’t been reduced on a wide scale yet, but the mentality of firms is changing, and CIOs are preparing for their spend to be scaled back,” said Steve Sutton, vice president of Capgemini’s Technology Services division. “People are moving back from leading-edge and innovation projects, such as Web 2.0, and are instead thinking about going back to basics with their technology projects.”

A recent report from analyst firm The Hackett Group suggests that a typical Global 1000 company can shave millions of pounds from its IT budget without impairing organisation performance, by moving to “world-class efficiency”. According to the report, the hallmarks of a world-class IT function are “architecture complexity management, centralisation, demand management and sourcing”.

However, Hackett Group adviser Eric Dorr said IT directors should liaise closely with their chief financial officer to get a clear picture of how efficient the entire organisation is before cuts are considered. He said organisations should focus on making cuts to low-risk areas, and consider offshoring. Dorr said Hackett’s research indicated that the areas that generated the biggest savings when outsourced were maintenance and development.

“Under recessionary conditions, time to benefit is key,” Dorr said, adding that it is easier to “lift and shift” an organisation’s services offshore, than try to untangle a number of integrated processes. He advised companies to form flexible contracts when outsourcing, be wary of high-base fees that cannot be reduced, and ensure they are adequately transferring risk to the outsourcing provider.

However, Capgemini’s Sutton argued that the credit crunch is unlikely to l ead to a rush among private sector firms to sign up for IT offshoring deals.

“I certainly don’t see businesses doing less offshoring, it’s just too obvious if you get something for 20 per cent less. But a lot of companies have already done their offshoring, so the threat to onshore jobs will stay the same. People have known for a while there is a need to reskill and rethink,” he explained.

The public sector is an area that could benefit from a rethink on offshoring, according to Sutton. He points out that while offshoring is a “no-no” for agencies such as MI5, MI6 and GCHQ for obvious security reasons, there is no reason the Foreign & Commonwealth Office, for example, could not look to invest in offshore services. “It does so much work overseas anyway,” he argued.

An IT manager at one UK local authority said budget pressures were unlikely to lead it to consider offshoring, however. He conceded that the current economic instability had increased the overall pressure across the council to make efficiency savings, resulting in the IT department needing to justify each item in its budget. However, he explained that the large upfront costs involved in outsourcing contracts had dissolved the department’s business case to move IT services off-site.

The council IT department has instead focused on analysing its procurement expenses to see where savings can be made, and re-negotiating contracts to reduce the amount it pays on maintenance.

Hackett Group’s Dorr said that if an IT department is unsure whether providers are delivering the most cost-efficient service, they should look to re-negotiate contracts early. A lesson learned from the previous recession is that it is easier to tighten controls on outsourcing vendors than make cuts internally, he added.

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