Cost-cutting trend hits public sector and enterprise markets

Nearly three quarters (73 per cent) of large corporations and government departments questioned by business advisory firm Deloitte are cutting IT costs this year and a further 10 per cent intend to carry out IT cost-reduction initiatives in the future.

Deloitte's report, How Low Should You Go? claims that 84 per cent of programmes designed to reduce IT costs in large corporations and government departments are reactive, with IT leadership rarely involved in setting cost-reduction targets.

Many of those organisations are willing to take significant risks to achieve savings, affecting business operations by delaying projects and forcing reliance on out-of-date IT infrastructure.

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. Cost-reduction targets are being dictated by individuals with limited understanding of the costs, risks and issues associated with IT service delivery.

“IT is reacting to business pressure by delivering short-term tactical savings that lack ambition, rather than driving long-term benefit.”

Howard said this willingness to cut back and cancel projects is building trouble for the future.

“The ability of IT to support the business is in danger of being compromised. IT departments and businesses face the risk of declining service levels.”

He added that when business conditions improve, it could throw up another set of problems.

“There will be pent-up demand for new investment that will need to be made, creating a different set of challenges for those organisations that have cut back on their IT staff. IT skills are scarce and organisations that have not retained the expertise they need may have a real challenge attracting new staff when markets strengthen, particularly if they have a ‘hire and fire’ reputation.”

Simon Wayne, managing director of VAR Parity Solutions, agreed that firms need to get the balance right.

“Simply reacting to situations is not enough,” he said. “IT should be seen as pivotal business strategy, not a malleable cost centre. Pressure to reduce costs can lead to reduced service levels, with the risk that IT will fail to deliver on the discretionary investment it is able to make.

“During a downturn, organisations still need to be dynamic – indeed, change can come faster than it does in the good times. IT cannot afford to go so deep into ‘care and maintenance’ mode that it is unable to support the organisation with flexibility and speed.

“That said, IT needs to be sensitive to the organisation’s directive to become ‘lean and mean’ by being extremely careful about where it spends money, and validating budget requests thoroughly. What is needed are short, sharp projects, enabled by quick buying decisions and delivery,” he added.