How to Cut IT Costs

Three cheers for President Obama’s commitment to aggressively tackle our economic woes. But let’s manage expectations, folks – he isn’t going to fix things overnight.

In fact, it will likely get worse before it gets better. And that means it’s belt tightening time. A word of warning, though: be careful where you cut.

While computers and phone systems might look like easy targets, cutting too deeply or in the wrong places could seriously hobble your business. There are ways to cut IT costs – or avoid new costs – but you have to choose carefully.

“The driver tends to be, ‘What’s the easiest thing to do to achieve cost reductions,’” says Andy Woyzbun, lead analyst at Info-Tech Research Group Inc.

For small firms, it’s often dumping contractors. This avoids the personnel ramifications of laying off a full-time employee – not that many small firms have IT staff they could fire anyway – and it eliminates out-of-pocket costs.

But that could be exactly the wrong move, Woyzbun cautions.

Careful Where You Cut

The outside contractor who manages your Web site, for example, may be an easy mark for downsizing, but if your whole business is predicated on selling through the Web, dumping that person could spell disaster.

“Especially for smaller organizations that use a lot of outside providers, they have to be very, very careful who they cut,” Woyzbun says. “They need to identify, out of everything they’re doing in IT, the stuff they really need to stay competitive.”

Another mistake: simplistic analyses that distinguish “discretionary” and “non-discretionary” spending, followed by indiscriminate cutting in supposedly discretionary areas.

It too often means cancelling projects to implement new technology, which, again, can be a mistake, Woyzbun says.

“I don’t think you can cut out all that stuff, because it’s the new [technology] often that lets you beat out or match your competitors. And there is going to be a bigger fight for a shrinking market.”

On the other hand, Woyzbun says, many small businesses, in good times, tend to implement everything business managers request. In hard times, they need a process in place for prioritizing new IT projects.

“If you don’t have any priority-setting process in place, if it’s just first-in-first-out, now is the time to put in that gate-keeper function,” he says. “And then only do stuff that’s really aligned with business strategies.”

Where else can you cut? The reality is, for some small businesses, there may not be many places.

Not Much Fat Here

When IDC surveyed small and medium-size businesses in September, the larger firms more often said they were preparing to reduce IT spending, the smaller firms said they would delay spending.

As IDC research manager Merle Sandler notes, small businesses have less room to maneuver. “If you need it, you need it.”

And small firms “really sweat their assets as it is,” Sandler says. “They beat the living daylights out of them. I guarantee you there are still lots of dot matrix printers out there. And we’ve got people with Windows 98, if not earlier.”

For many small businesses, that may be all they can do – just keep stretching their existing assets to avoid new spending, she says.

That is certainly one way, Woyzbun agrees. Keep equipment you own longer, extend leases if possible rather than swapping out for new. And not refreshing equipment as planned will also save overhead, mainly labor, involved in switching.

“But I’m not suggesting you stick with what you’ve got at any cost,” he adds. “If you’re in a business where quality of Internet service is important, you don’t want to have a crappy Web server.”

Again, pick your spots. But one exception, across the board, is storage. The economic downturn is unlikely to slow growth in data storage needs, and, unit cost for storage media continues to drop, making it very affordable.

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