VideoAmong the gruesome numbers to come out of the financial crisis are the ones hitting corporate IT, especially at major banks. In a recent round of cuts, 650 IT jobs will go at Credit Suisse, 500 at HSBC and up to 1,800 at Barclays. Many are also slashing their spending with contractors. Goldman Sachs and Citigroup, for example, have demanded that contractors accept a 15% cut in daily rates, while HBOS and Barclays made take-it-or-leave-it offers of 10% reductions.
But CFOs wanting to help get their companies through the downturn could find that across-the-board cuts in IT result in unintended consequences. Indeed, "CFOs should ask where cost reductions can be made without harming long-term strategy, and which innovations need to be ring-fenced," says Carole Murphy, global head of finance and employee transformation at CapGemini, an IT consultancy. She also notes that cutting particularly scarce resources — notably staff with a deep, strategic knowledge of IT — should be done with care. "CFOs must distinguish between employees who [have] difficult-to-replace skills, such as expertise in dealing with business-critical processes like product control, and those whose jobs can be outsourced safely."
Having a clearer understanding of IT investments is also important, and diversifying project portfolios is one way to help do this, says Simon Orebi Gann, a former CIO. "Aim for a balance portfolio with staggered returns — think of planting seeds every year for harvests that come over several years, not just quick crops to harvest next spring," he advises. As a rule-of-thumb, he uses a ratio of spending on new or existing IT of around 40:60. "If the ratio is 20:80, for example, that is a sign that you are spending too much on old systems," he explains. "Conversely, a 80:20 steady state could mean that IT spending is unfocused or profligate."
Balancing Act
However a project portfolio is balanced, cost containment has now become "job one" for corporate IT departments, as a report from IT research firm Forrester notes. Any tech investments getting the green light need to be "small, quick-hit wins," while larger, capital-intensive projects will be postponed or downsized. Paul Hamerman, one of the report's authors, predicts that this will be the case until at least the latter half of this year. He adds that faster time-to-value projects will be more prevalent in 2009, resulting in the rollout of more "smaller scope applications such as budgeting systems rather than traditionally large scope projects such as ERP."
For CFOs, the choice boils down to "absorb the hits to keep a project going, put it on hold, or cut losses and scrap it altogether," he concludes. So how are finance chiefs managing the three options?
Open a New Window
One CFO opting to keep a project going can be found at Amplifon, a €668m, Milan-based distributor of hearing aids. Ugo Giorcelli, Amplifon's finance chief who is also in charge of IT, says that though the company is feeling the impact of the downturn — its long-term growth rate of 5% to 7% has been revised down to 0% to 2% for 2009 — it is continuing the company-wide rollout of a customer-relationship and salesforce platform, which is scheduled for completion in several stages over the next three years. "Because only about 1% of sales is spent on IT, we decided that the deployment costs are still affordable despite the economic downturn," he says, adding that, "The system is critical to our retailing business, which serves 3,000 stores globally."
And Giorcelli is looking on the bright side. Because he reckons that the medical supplies industry will continue to be relatively robust, he doesn't expect to reduce IT staff numbers, which currently comprise 22 employees in Milan and 60 at its subsidiaries. What's more, he notes that the downturn is providing corporate IT staff with welcome breathing space. "As we expect little [M&A] activity until 2010 at the earliest, IT teams have more time to go back and make sure that existing systems are integrated properly," he explains.
That's important for a company such as Amplifon. It has grown rapidly by making one acquisition every year on average since its debut on the Milan stock exchange in 2001. Such growth has often put a strain on IT staff, requiring quick, but not always perfect, post-acquisition systems integration. Now the company has a window of opportunity to focus on internal process improvement.
Having responsibility for both finance and IT certainly comes in handy. Giorcelli says his dual role makes it easier for him to bring finance and IT teams together in regular meetings to evaluate performance, make forecasts and discuss projects. One strategy they are putting under a lot of scrutiny at the moment is the outsourcing of IT.
As at other companies, cost will be big factor when considering outsourcing. "Companies will outsource because it gives them access to more cost-effective third-party IT expertise," says Gard Little, research manager at IDC, a market research firm. Although IDC forecasts growth in IT outsourcing spend in EMEA to fall to 7.2% this year from 8.3% in 2008, the figure looks more robust when compared with the cost of other IT-related services such as IT consulting, projected to grow by only 0.9% next year compared with 4.2% in 2008.
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