Among 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.”
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.”