Monday, June 16, 2014

How much more with less ?

Over the years economic cycles have turned all conventional wisdom upside down; the new normal that became reality before the turn of the decade squeezed all the unnecessary costs out of every line item in IT budgets. Do more with less being the mantra, CIOs scrutinized operations and optimized them ruthlessly. Half a decade later and half way through the year, one of the resurgent themes with many CIOs is conservation of funds; revenue growth has been under pressure for some time, bringing costs back into focus.

In an informal gathering of CIOs this was the predominant theme with everyone attempting to figure out where do they get additional savings from ! Hardware refresh had eliminated maintenance costs for a few years, but now maintenance and support contracts are up for discussion for all the critical and non-critical hardware. Users now expect desk side support for all types of incidents and problems; with rising manpower costs, hardware service vendors and maintenance providers are demanding inflation linked increases.

Last time around there was a flurry of activity around license management; are people really using their allotted licenses ? Thus software license costs were pruned down to the bare minimum required; number of users has gone up now and there is a need to buy additional licenses. Vendors pushed usage audits and attempted to enforce compliance to license agreements putting the CIO in a precarious situation; no one wanted to be non-compliant. Open source again became a discussion with limited success for some.

Back then again contracts for running legacy and custom applications, and maintaining business as usual were trimmed; wherever possible the activity moved to internal resources. Onsite activities were offshored to the service provider’s premises; back office functions relegated to low cost locations in the suburbs. Contracts were examined afresh and brought down to a bare minimum. A few also took the tough step of letting some of their team mates go and reallocated portfolios stretching the remaining team. FUD ruled for a while.

So where do we look for new savings opportunities ? How much more can we do with less lamented the group ? The group had no bright ideas, nor any best practices to share. One of the CIOs present gathered sympathy for a 25% cut imposed on her capital investments as well as operating expenses and still expected to run projects as well as keep the lights on with no adverse business impact. Someone suggested that she conduct an open dialogue with her boss and ask him for ideas on how to implement the cut.

Systematically the group explored some of the options that vendors pitch in as cost savings measures. Is the Cloud with pay-per-use models a viable option ? Variability has been one of the promises from the cloud; but then the proponents of this model cautioned against if cost savings was the primary objective. If you moved existing loads to the Cloud, what would you do with the existing hardware ? It would anyway make sense only if there was a need to increase compute capacity or hardware refresh was imminent.

Can and should total or strategic outsourcing be explored ? That is when most vendors promise 20+ percent savings and projections are locked down for a number of years ! Transfer the accountability and let the vendor figure out how. A couple of CIOs who had been there done that cautioned against it. They have had a harrowing time making some of the numbers in the spreadsheets stick in real life. Legal teams poured over contracts to find a way to make it stick; the CIOs ended up in getting the stick instead.

Most organizations which are driven by ratios and numbers resort to cost cutting rather than cost management in their attempt to keep the street happy. They want to look better than their competitors and keep the stock price high sometimes even at the price of damaging the DNA of the company. Consultants get hired to find hidden costs while they get paid visible money with diminishing returns. I believe that enterprises driven by customers don’t resort to cycles of cost containment and thrive in adversity.

A lone voice in the room asked, “Can we look at increasing revenue instead ?”

1 comment:

  1. Thought provoking article Mr.Arun, explains the reality CIOs face. It resonates with my experiences interacting with most CIOs during my product pitch. This blog prompted me to put my views related to innovation under budget constraints in my blog which are in similar lines.