Stewart Buchanan, VP Analyst at Gartner, discusses how CIOs can respond to executive leaders
Companies must watch their spending as supply costs, energy bills and the cost of talent are soaring. At the same time, businesses must continue spending to operate and avoid business damage. However, in unstable times, some boards are instructing CIOs to cut their IT budgets without considering the potential for negative business outcomes.
Stewart Buchanan, VP Analyst at Gartner, discusses how CIOs can respond to executive leaders when they are pressing for IT budget cuts.
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Q: Why should CIOs not cut spending in unpredictable and turbulent times?
A: Back in the 1990s, when IT was strictly “back office,” IT cost cuts had less business impact. Today, IT is front office and even revenue-generating, so it is no longer easy to cut without damaging business performance. In response to the current economic turmoil, organizations are using digital technology to realize operational efficiency and cost savings and to transform their company’s value proposition, revenue, and client interactions. This means a steady IT budget is necessary to push these digital business initiatives forward. In fact, Gartner forecasts that worldwide IT spending will increase 5.1 per cent in 2023.
It is paramount that CIOs continue to have access to funding. Without money for transformation, costs cannot be restructured. Many organizations mistake inaction for a cost saving but instead accumulate technology debt. In addition, when executives fail to increase the CIO’s budget in response to inflation, it doesn’t reduce the cost of IT or business demand for performance-enhancing technology.
Q: How can CIOs defend IT budgets under pressure from the CFO and other senior executives?
A: Often the root cause of pressure to cut IT budgets stems from a failure to articulate the connection between technology spending and business outcomes. If the board or C-suite mandates technology spending cuts, the CIO should present a business view of IT spending against business performance. Creating a business view empowers business executives to see the relationship between the two. Improving business results is the best protection against technology spending cuts. For example, customer relationship management spending is less likely to be cut when it is driving sales growth.
CIOs must engage business stakeholders and make them effective advocates for technology spending at the board level. Conduct a risk assessment with the business to show how IT budget cuts risk damaging business performance or costing the business more.
For example, ask your stakeholders to identify the IT services they believe cost more than they are worth. Together, investigate the business impact of cutting or withdrawing IT services to validate requirements, and balance the risks of service reduction or removal with the cost of risk mitigation. In this scenario, stakeholders have all the information to make an informed decision.
Q: What are your top recommendations for CIOs facing emergency cost-cutting situations?
A: Emergency cuts are rarely optimal in a well-run IT organization. But, in a financial emergency when CIOs must make rapid decisions, it is almost impossible to rapidly cut spending without some form of risk. Within the short time frames involved, CIOs must explain the risks to business stakeholders to share responsibility for risk acceptance.
Given the urgent nature of the emergency, CIOs should assess the effectiveness of spend reduction ideas by how much they will reduce spending. Focus on the amount of reduction that can be realistically achieved within the time. Reduction targets typically take precedence over other priorities until safely exceeded. Then CIOs can deprioritize actions that have the most negative impacts on business risk and value.