How to Cut IT Costs

Tuesday Feb 3rd 2009 by Gerry Blackwell
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Every business is looking for places to save money, and IT costs are no exception. But knowing where to trim IT is crucial. We ask the experts.

Three cheers for President Obama’s commitment to aggressively tackle our economic woes. But let’s manage expectations, folks – he isn’t going to fix things overnight.

In fact, it will likely get worse before it gets better. And that means it’s belt tightening time. A word of warning, though: be careful where you cut.

While computers and phone systems might look like easy targets, cutting too deeply or in the wrong places could seriously hobble your business. There are ways to cut IT costs – or avoid new costs – but you have to choose carefully.

“The driver tends to be, ‘What’s the easiest thing to do to achieve cost reductions,’” says Andy Woyzbun, lead analyst at Info-Tech Research Group Inc.

For small firms, it’s often dumping contractors. This avoids the personnel ramifications of laying off a full-time employee – not that many small firms have IT staff they could fire anyway – and it eliminates out-of-pocket costs.

But that could be exactly the wrong move, Woyzbun cautions.

Careful Where You Cut

The outside contractor who manages your Web site, for example, may be an easy mark for downsizing, but if your whole business is predicated on selling through the Web, dumping that person could spell disaster.

“Especially for smaller organizations that use a lot of outside providers, they have to be very, very careful who they cut,” Woyzbun says. “They need to identify, out of everything they’re doing in IT, the stuff they really need to stay competitive.”

Another mistake: simplistic analyses that distinguish “discretionary” and “non-discretionary” spending, followed by indiscriminate cutting in supposedly discretionary areas.

It too often means cancelling projects to implement new technology, which, again, can be a mistake, Woyzbun says.

“I don’t think you can cut out all that stuff, because it’s the new [technology] often that lets you beat out or match your competitors. And there is going to be a bigger fight for a shrinking market.”

On the other hand, Woyzbun says, many small businesses, in good times, tend to implement everything business managers request. In hard times, they need a process in place for prioritizing new IT projects.

“If you don’t have any priority-setting process in place, if it’s just first-in-first-out, now is the time to put in that gate-keeper function,” he says. “And then only do stuff that’s really aligned with business strategies.”

Where else can you cut? The reality is, for some small businesses, there may not be many places.

Not Much Fat Here

When IDC surveyed small and medium-size businesses in September, the larger firms more often said they were preparing to reduce IT spending, the smaller firms said they would delay spending.

As IDC research manager Merle Sandler notes, small businesses have less room to maneuver. “If you need it, you need it.”

And small firms “really sweat their assets as it is,” Sandler says. “They beat the living daylights out of them. I guarantee you there are still lots of dot matrix printers out there. And we’ve got people with Windows 98, if not earlier.”

For many small businesses, that may be all they can do – just keep stretching their existing assets to avoid new spending, she says.

That is certainly one way, Woyzbun agrees. Keep equipment you own longer, extend leases if possible rather than swapping out for new. And not refreshing equipment as planned will also save overhead, mainly labor, involved in switching.

“But I’m not suggesting you stick with what you’ve got at any cost,” he adds. “If you’re in a business where quality of Internet service is important, you don’t want to have a crappy Web server.”

Again, pick your spots. But one exception, across the board, is storage. The economic downturn is unlikely to slow growth in data storage needs, and, unit cost for storage media continues to drop, making it very affordable.

Hand-Me-Downs

If you must buy, Woyzbun suggests, consider second hand or refurbished equipment. This is an increasingly viable option that can significantly reduce costs.

As companies scale back IT spending, returning equipment to vendors, or they fail and liquidate their IT assets, that equipment becomes available on the growing market for used gear.

There are other safe ways for small businesses to reduce spending or avoid new spending.

Companies with maintenance contracts on software that give them free upgrades to new versions and priority technical support, can often cancel those contracts without much risk, Woyzbun says.

“If you have a stable application and no urgent need to move to [an upcoming] new version, why are you paying 15 to 20 percent of the original licensing fee a year for what is essentially insurance?”

Playing Hardball

And it may be possible to renegotiate some contracts – for hardware maintenance, for example – to reduce fees. Contractors may haggle if they sense you will otherwise pull your business.

“It’s always worth a try,” Sandler says. “It depends how much the vendor's hurting. If the option is that you’re not going to renew, it might be willing.”

But to pursue such a strategy, small businesses need to get out of the habit of just automatically renewing when the vendor says it’s time. They need to keep closer track of contracts, Woyzbun says, and be prepared when renewal time approaches by finding alternative suppliers as a back-up and developing negotiating strategies.

Another possibility is negotiating a reduced price for reduced service. For example, pay less for a guaranteed 24-hour response time from a hardware maintenance contractor than you do now for four-hour response.

For companies big enough to be maintaining multiple servers, consolidation through virtualization – loading multiple applications on a single physical machine rather than dedicating an entire server to one application – may provide an opportunity to save money.

Fewer servers means lower power and hardware maintenance costs, and used servers can sometimes be sold off.

If you’ve already begun the process, further reducing the number of servers under maintenance will cut more costs, Woyzbun says. But if you haven’t already begun, now may not be the time to start. “It doesn’t have an immediate payback.”

Indeed, consolidation through virtualization will probably require some initial investment. “It’s a good thing to plan for for the future,” he says. “But if you’re under duress, I’m not sure you’re going to be able to quickly mobilize the benefit.”

And of course, for many small businesses, it’s not an option at all because they’re just too small. As Sandler says, “It’s difficult to get rid of a server if you’ve only got one to begin with.”

The same applies to consolidating software by “retiring” applications that are no longer in use or needed. It’s often a way to reduce costs, especially IT management costs, in companies that have grown through acquisition and have multiple applications that do that same thing. But again, most small businesses are already fairly lean in this respect.

The Most Unpopular Cut

More careful spending on cell phones and smart phones may generate significant savings, Woyzbun says. First, you need a more stringent process in place to determine who should be issued with a company phone.

“The devices themselves may not cost all that much, but they always come with data plan overheads that amount to real money.”

Another possibility: instead of issuing company phones to employees, ask them to use their own – most now have them – and reimburse them for the business calling they do. It’s a strategy that saves money and eliminates bureaucratic overheads.

Helping the Help Desk

Using the IT Help desk more intelligently is an important way to reduce costs, Woyzbun says – at least it is in companies big enough to have one or to use a service that charges by the incident.

When employees have to call someone to solve a computer problem, there’s a double cost hit. It means lost productivity for them plus consumption of expensive Help desk resources.

Rather than focusing on making the Help desk more productive and efficient, Woyzbun says, companies should find out the most common reasons for calls and try to solve those problems at the root as a way to reduce Help desk incidents. It may be a question of fixing an application or simply training employees better.

Finally, if you’re big enough to have an IT staff, and you need to reduce personnel costs, propose that employees all take a reduction in hours and pay, something that some large companies are already doing.

Of course, as IDC's Sandler points out, only firms with 50 or more employees are likely to have IT staff, and maybe not even then. “And you can’t get rid of non-existent IT staff,” she says.

For many small businesses, Sandler notes, the question of reducing spending may be moot. Capital is so tight, they can’t get their hands on money to spend on IT in the first place. “So cuts could be forced on them.”

Based in London, Canada, Gerry Blackwell has been writing about information technology and telecommunications for a variety of print and online publications since the 1980s.

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