IT Strategy for Difficult Times

In response to the global economy crunch, businesses are trying everything to cut expenses, safeguard cash, and support their stock prices. Historically, one of the first costs cut in difficult times is IT CAPEX, as we saw after the “dotcom” bust. However, this is a critical strategic gaffe that extends the upturn period and can even cause companies to go out of business.

IT has a direct bang on a company’s development, productivity and capacity to adapt to vibrant market conditions. If your company is following the old trend of cutting IT CAPEX to save expenses, then read on to see why you should instantly drive for a change. Now is the time for companies and leaders to follow a diverse path which will result in great accomplishment. With the correct strategy and careful use of IT CAPEX, your company can grow market share and come out of this recession. Read on to understand IT strategy steps that you can apply to help out you in guiding your organization to make the precise decisions.

Step 1. OPEX is Bad, not CAPEX; Attack OPEX

• OPEX (Operation Cost) is the ongoing cost required to run day-to-day IT operations. Simply assume you are not trying to add customers, expand into new products or regions, or make any changes to your business, but you were continuing to run daily IT operations.


• CAPEX (Investment) is the cost of all new IT investments.


• In most businesses, OPEX symbolizes between 60% and 80% of the total IT cost, while CAPEX symbolizes 20% to 40%.


• If a company has a cost issue, it should attack the major part of the hitch (OPEX)


• The more you trim down OPEX, the more efficient your company becomes,


• The more you trim down OPEX, the more you have to invest in CAPEX or return to your business/shareholder.

Let’s review four important action areas to reduce the OPEX cost for areas, most companies ‘CAPEX’ a large amount of money.

1. Consulting Cost
Renegotiate a 20% to 30% rate reduction. Make it clear this is short-term – but also that companies who participate will continue to be long-term partners when economic situation progress

2. Renegotiate All Agreements & Contracts
Renegotiate a 30% to 40% rate reduction and revision of agreement/contracts. Reduce the scope for which you are sure, IT team can handle internally. Make it clear this is short-term – but also that companies who participate will continue to be long-term partners when economic situation progress and staff who extend support during this period be eligible for good bonus/appraisal.

3. Storage
a) Re-evaluate your storage policies to ensure you are only keeping the least quantity of data required to meet regulatory requirements and to run your business.
b) Relocate older data storage to offline or slower responding storage. While information is important, you need to make sure the value of online storage is really worth the cost.

4. Applications & Hardware

• Evaluate applications for redundancies and IT hardware for replacement


• It requires harmonization between application and infrastructure workforce.


• The implementation time will be elongated, but the gain is worth the time invested.

a) Extend the useable life of the assets and thus set out the replacement cost.
OR
What if the replacement hardware uses 50% less power requires little or no maintenance, can handle few times the volume, or runs two to three times more efficiently than the old asset? The total cost may be less if you decide on a replacement strategy. Plus, hardware vendors/partners are also impacted by economic melt, so you should be able to have negotiated a better price.

b) Data center usually runs far below 100% utilization. Amplify the utilization rate before you spend the money to add more hardware.

c) Drag together an inventory of your applications, their purpose, and the number of users. Eliminating or at least reducing these will provide immediate pay off with little to no straight cost.

Determine the amount of OPEX spend that is required for production management (day to day running of applications). Then, intrigue this against the average number of outages/month. If the production percent is high and the number of outages is also high, you have a clear gauge of a quality and expense problem that needs to be addressed.

Step 2. Growth Is the Key to Victory

CAPEX is the means of growth. Spend more of CAPEX on growth investments at time of crisis.

Step 3. Out of the Box Results in Cutthroat Advantages

• Be innovate, change management friendly, and respond quickly to business changes.


• Such adapting requires that companies invest over the long-term to create cutthroat advantages.


• Dive deeply for R&D

A million dollar question - “Can your business reduce CAPEX spend at this time and stay competitive? “
Step 4. Cost Reduction to Cost Elimination

• Cost reduction in normal times is important for business; in difficult times it is must.


• In today’s world, start considering how to automate work, which eradicates the task and therefore its cost. Automation, work flow enhancement, and work elimination through technology is the right pathway.


• Automation and continuous eradication of work requires CAPEX that is devoted to process enhancement and elimination of work task.

Step 5. Aligning IT CAPEX Spend with Business Objectives

1. As normally it is said, IT alignment with business the same case with CAPEX. Is the spending aligned with the overall business objectives? There needs to be a clear relationship between the business and IT before projects begin. IT must develop a profound understanding of the business, the customers, the products, the strategy, market changes, and everything else that bangs how the business is run. The business must understand how IT will assist it run more effectively, and spend the time with IT to explicate their business requisites.

2. What is the idea of the IT spend and what part of the business is paying for the spend?
Purpose is limited to one of four areas:

Revenue – boost or uphold
Cost – trim down, eradicate, or avoid
Risk – trim down or mitigate
Legal – comply with regulations and audit requirements

• If the spend cannot be directly coupled to one or more of these four, why is the business requesting or IT working on the project?


• With the correct tools in place, the determination of the purpose is quite simple, and projects that should be killed quickly come to the surface.


• Whenever possible, this should be a profit center of the company, so the IT spending can be included in the overall operating income of the profit center.

3. Is this the best use of limited CAPEX spend?

• Companies should require an ROI business case for each major investment.


• This should be reviewed and approved by IT, the sponsoring organization and the finance group. To ensure the best possible use of CAPEX funding in recession, you may shorten the ROI time period, or increase the minimum level of ROI.


• The ROI from each business needs to be measured against other possible uses of CAPEX spend.


• In addition, the sponsoring organization needs to understand that its approval indicates a commitment to the financial objectives. So, if the business case includes a 100,000 reduction in cost, the sponsoring organization’s budget will be 100,000 lower when the project is completed.

Wrap Up

Tough economic conditions require difficult decisions and great leadership. Following the orthodox by reducing your overall IT is quite easy. Be courageous, try a new approach. This will help differentiate you and your company with others. You will be shocked how long-term success will naturally transpire.

Disclaimer

Above are the thoughts of blogger based on his experience in IT. It is not necessary that everything fits as mentioned above. Business to business approach may change partly or whole. But blogger feels, these are few of the many areas which need to be addressed during global economy crunch.