Information technology managers must engage in “financial re-engineering” and communicate strategy effectively with business leaders if IT organizations are to survive the pressures of the market, according to research firm Meta Group Inc.
Stamford, Conn.-based Meta on Monday unveiled “IT Financial Re engineering: The Yin and Yang of IT Cost Reduction,” a report outlining how squeezed IT managers can balance the needs of performance and investment, the yin and yang of business-focused IT.
According to META, 2001 IT budgets, previously thought to increase by 10 per cent from 2000, are now facing a 10 per cent reduction from the previous year. In its report META offers short-term and long-term strategies for maximizing IT budgets, strategies the president of the Information Technology Association of Canada said IT managers should have been implementing years ago.
META’s short-term strategies include cutting initiatives that don’t possess quantifiable benefits.
“You want to have a clear understanding of how these projects are going to pay back,” sale Dale Kutnick, Meta president and chief executive officer. “Are they going to increase revenue, increase profitability?”
IT managers should also consolidate their technology, pay close attention to asset management and eliminate technologies in limited use, and implement a benchmarking process that will allow them to continuously evaluate expenditures with benefits. Howard Rubin, Meta’s executive vice-president warned against the danger of buying more technology than is affordable.
“Have you been eating a tech brownie everyday? You may have a great metabolism, but you’re $92 million over the limit,” he said.
Finally, Meta said IT managers should renegotiate software, storage, sourcing and telecom services.
But Gaylen Duncan, president of CEO of ITAC, said this is easier said than done.
“It could be tough,” he said. “If you’ve got distributed telecom negotiations and you consolidate the process, you’ve given a reason to renegotiate. If you simply go out and say you’ve had a bad year, that’s a tough starting point.”
For the long term, Meta said IT organizations need to transform IT from an expense department to a value department, develop business-program management to maximize business benefits from IT projects, and construct a modular infrastructure foundation to facilitate business initiatives. IT managers must also ensure business initiatives like customer relationship management are directed towards revenue and profitability and centralize operations.
ITAC’s Duncan said decentralization delivers efficiencies as often as centralization, and suggested unsatisfied IT managers should try taking the opposite approach of the one currently being employed in their organization. He also said IT managers should consider outsourcing. “If it’s not core to your business, get out of it,” he said.
For the most part, Duncan concurred with Meta’s strategies, suggesting they mainly lacked only originality.
“If you’re a decent CIO, you should have been doing that stuff for the last five to 10 years,” Duncan said of the short-term strategies, adding that chief information officers should have undertaken the longer-term strategies in the last five years.
Whether or not IT managers have already implemented these strategies, Duncan and Meta agreed that IT managers must be able to convey the strategies in business terms.
“IT organizations need to do a much better job communicating with business leaders,” said Kutnick. “You need great communicators because you’re going to surface things in your organizations that are going to be controversial.”
Rubin said IT managers should ideally be strategic partners with company business leaders, consulted with on mergers, acquisitions and divestitures. The affect of business decisions on IT organizations should be recognized and considered, he said.
“Transformation (of IT from cost department to value department) requires the adoption of this new model.”
ITAC’s Duncan said this has already happened in Canada, as “IT SWAT teams” are now a regular part of Canadian mergers and acquisitions.
He said business units have become much more tech-friendly over the past five years and CEOs refuse to tolerate IT managers who are unable to communicate effectively.
“You can’t hide behind the lingo,” Duncan said. “Any IT manager not attuned to this issue is dead.”