With many companies battening down the hatches and looking for ways to ride out the current economic turmoil, without incurring any lasting damage, cost-cutting is one of the key areas of focus for many executive committees.
With technology spend forming a large component of the operational spend of many companies, the temptation is strong to look toward the IT budget as an easy opportunity to reduce costs.
However, Marius van den Berg, director for technology security & risk services at Ernst & Young, cautions that taking this path should be something that is done with great care.
"It is important to remember that ever since the deflation of the tech bubble following the rampant spending that preceded Y2K, IT spend has been under tight scrutiny. There may be some cost savings inside the IT function but the chances are that these savings are not likely to directly correlate with the percentage of the budget that IT makes up," he says.
He explains that rather than simply dictating a simple percentage to be cut from the IT budget, companies need to look at what they would be willing to sacrifice in order to deliver the desired savings.
"Many of the services that IT delivers to the business are based on service level agreements between the business and the IT department or external service providers. If the business wants to cut these costs then it will have to look long and hard at what the implications of this would be on the performance of business units.," he comments.
The problem that many companies face is that they have a single service level agreement across the organisation with little or no differentiation between the various divisions. Van den Berg explains that this means that before there can be any reduction in the service level agreement with either internal or external service providers there needs to be a thorough assessment of the impact that this reduction would have on the ability of the company to continue its operations uninterrupted.
He gives the example of a financial services house which might be able to tolerate some downtime in the administrative parts of the business but should the systems that power the trading floor go off line there would be a real and immediate economic impact on the company.
He also warns about the danger of falling behind on the innovation cycle.
"In all companies there are systems that simply provide the basic infrastructure to allow the business to continue running and not keeping up with the latest and greatest technology will not have a real impact on these systems. Email is a good example of one of these services as there is little to be lost from delaying an upgrade to a mail system if the needs of the business do not dictate it. However, if there is a strategic and competitive advantage to be derived from deploying the latest version of a particular system then delaying this implementation could be catastrophic in the longer term," he explains.
In this regard, understanding what IT systems provide a strategic advantage to the company is a key component of making the organisation more efficient. This does, however, form part of a larger process of mapping and understanding the various business processes and their part in the greater business. Without this understanding cutting IT spend will be a hit and miss affair.
"The chief financial officer should be asking the chief information officer what they have already done to optimise the technology spend in the business, before deciding how best to reduce the cost of technology to the business," he says.
The one simple way to approach this problem is to implement more effective charge back mechanism for the provision of IT services. He explains that while the business may decide to cut costs and personnel elsewhere and this may have an impact on the cost of the IT service provision.
This would create a direct link between cost reduction in the rest of the business and cost reduction in IT.
Irrespective of the route to take to contain costs simply targeting IT because of its high cost could result in the business being ill prepared to take advantage of opportunities that may present themselves in the near-term.