IT Cuts Create Long-Term Risks

Companies could be risking their ability to respond to an upturn when it finally happens by imposing misguided cuts to IT departments and infrastructure according to new research.

In a report entitled How low should you go?, consultant Deloitte claims that 73 percent of the public and private sector orgainisations it spoke to are planning to cut their IT costs with a further 10 percent planning cuts in the future.

Although cutting costs might be a necessary step for many companies at the moment, much of the action that is being taken at the moment appears to be reactive and haphazard according to Deloitte with little strategic planning about the future impact on IT service provision.

According to Deloitte partner Neville Howard, the research seems to indicate that companies are prepared to take significant risks in order to cut costs. “IT departments are scrambling to cut costs but are unwittingly storing up problems for the future,” he said. “Cost reduction targets are being dictated by individuals with limited understanding of the costs, risks and issues associated with IT service delivery. IT is reacting to business pressure by delivering short-term tactical savings that lack ambition, rather than driving long term benefit.”

The risk of the cutting now with little focus on the future said Howard, is that companies won’t have the necessary skills or infrastructure to react quickly when the recovery eventually arrives. “There will also be pent-up demand for new investment that will need to be made when business conditions improve, creating a different set of challenges for those organisations that have cut back on their IT staff,” he said. “IT skills are scarce and organisations that have not retained the expertise they need may have a real challenges attracting new staff when markets strengthen, particularly if they have a ‘hire and fire’ reputation.”

Tactics companies are employing to cut costs include trying to cut the amount spent on suppliers and services, outsourcing infrastructure and laying off staff. According to Deloitte around 72 percent of respondents have negotiated with suppliers to reduce prices, while 58 percent of respondents are planning to outsource IT infrastructure, network and application management services.

When it comes to headcount reduction, around 50 percent of those companies surveyed said they are planning to cut the number of contract staff between 50 and 100 percent. Permanent staff will also be affected with around 66 percent of organisations planning cuts of 10 percent or more.