Survival tips for tight times

As the economic downturn hits year three, how are CIOs coping with continued pressure to cut costs? Five CIOs from the Information Management Forum, an association of senior IT and business executives, explained their approaches during a roundtable discussion with CIO Deputy Editor Richard Pastore at the IMF’s recent meeting in San Diego.

LEE LICHLYTER, vice president and CIO at Butler Manufacturing Co., engages the board.

In nonresidential construction supplies, the past 18 months have been brutal, with capital spending way down. There’s a willingness to invest, but you’ve got to show the proof. And that proof has gone beyond the business level — I’ve seen more awareness at the board of directors level than I ever saw before. Their questions about value are more insightful.

Most of us have already cut all the discretionary stuff. If there has to be another reduction, you sit down with the business functions and ask what hurts the least to cut. Invariably they choose to reduce service levels (such as the help desk) because that feels less painful to them or less real. It’s not always the best choice, but it seems to be the easier decision. It’s also tempting to delay a project down the road versus stopping something that’s active. But sometimes it makes more sense to cut a current project; the next project may have a better payoff.

WILLIAM MILLER, vice president of IS at communications company Harris Corp., prunes staff.

We are so concerned with value that we do an ROI assessment and sign-off for every project over US$50,000 now. We have two executive signatures on each project — the business unit CIO and the financial controller, or if it’s a larger project, it’s the president — so there’s no finger-pointing down the road.

Also, we have redoubled our efforts to manage poor performers out of the business. With the industry suffering, there’s very low turnover; everybody is laying low. They’re generally not going to leave on their own. So it’s important to actively work the poor performers out. Make sure your management team understands that they won’t be punished in terms of resource shortages if these people leave. It’s not fair to the rest of the workforce who are busting their humps in tough times to have these poor performers by their side, not carrying their weight.

DORON COHEN, senior vice president and CIO at Canada Life Assurance, shuns software upgrades.

In insurance, IT is the product pipeline. Shrinking IT costs can improve efficiency but can also reduce production capability or slow down the ability to launch new products.

In the past, any crafty IT manager could force his company to make an investment in upgrading software just by pulling out the “this-software-is-no-longer-supported” card from his sleeve. This does not work anymore; our management is now saying, “So what? So the application will be three generations behind?” The most cost-effective IT solution in many areas is using software that’s five or six years behind the current version. I’m not happy with that because sometimes we are shooting ourselves in the foot. But when it’s $3.5 million just to migrate to the latest version of an application….

ABBE M. MULDERS, executive director and CIO at Dow Corning, benchmarks in-house IT costs.

Our company did a competitive assessment of the internally delivered IT services to compare our in-house costs to the marketplace. We wanted to determine if the businesses would gain further value — mostly centered around costs — from an outsource provider.

Overall, the assessment proved that we were delivering the agreed-upon services at or below the market rates. The assessment results were reviewed with the business unit leaders to gain their approval to retain the internal sourcing for the services. The business general managers accepted the recommendations and agreed to annual market price benchmarks to keep our internal IT costs aligned with what is happening in the marketplace.

CECIL SMITH, senior vice president and CIO at Duke Energy, avoids megaprojects.

We are highly cash conscious and are not going to spend more capital than we can generate out of the energy trading and marketing business. In IT, we are reemphasizing the basics with a focus on critical projects such as risk management and converting and integrating acquisitions. We don’t have any large and looming projects on which to spend $10 million. We’re continuing to invest in baseload application maintenance.

One problem with outsourcing to cut costs is that it can take you a long time to realize the benefits. If you started right now and you try to outsource your IT operations — to IBM, EDS or CSC — it will take them three to six months to analyze your operation and write a contract, and then six to nine months to convert operations to the outsourcer.