CIOs cannot reduce IT costs any more

Boards are putting managers under pressure to find second and third round savings from IT operations, but many managers are struggling to do so, a study by Compass Management Consulting has found.

With the simple identifiable cost cutting measures already made, managers are finding it hard to harvest further cuts.

What's more, the indiscriminate nature of some cost-cutting has "resulted in unsustainable savings and, in some cases, has reduced the options for future savings", Compass said.

“When volumes are going down, it is easy to make across the board cuts of, say, 10 per cent, but these exercises often amount to no more than poaching from future savings opportunities,” said Paul Teather, regional president of Compass Management Consulting.

"We are seeing organisations which made cuts in the first round that had unintended consequences in terms of service quality and even increases in overall costs."

Teather added: "It is not enough to cut 10 per cent across the board or close half the outsourcing centres based on geography as volumes drop".

Instead, Compass advised managers to make a forensic case for change and model costs and benefits in a way that reduces risk but ensures savings will be delivered.

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By doing this, companies could cut up to 20 per cent on storage, software and telecommunications costs, according to Compass. The IT consultancy cited examples of a FTSE 100 financial services company with multiple processing centres that managed to cut a further 50 per cent in costs, after performing these tasks.

“Boards are under pressure to maintain margins even when volumes are in decline. At the same time shareholders need confidence that cost reduction programmes are going to generate sustainable savings and not have unintended consequences on sales and customer service,” said Teather.

“This is why the best performing companies are instituting fundamental change in their business, including challenging levels of demand and implementing new governance structures for their IT and operations.”

“Detailed information on performance and comparison with best practice across the sector means that far greater savings than 10 per cent can be made by eliminating the underperforming facilities,” said Teather.