September 09, 2008

Think Beyond Cost Cutting - Managing IT during an economic downturn

Many Indian companies which are into the services outsourcing business, have been going though a rough patch with the rampant recession in the United States. Many Indian services companies have a larger share of customers in the United States. Due to the growing recession, many companies in the United States have been looking to reduce their IT (Information Technology) expenditure. As a result, these companies have started to pull out projects that were earlier queued up for outsourcing.

Over the past decade, many companies (whatever their main business has been), have increasingly got dependent on IT. This has resulted in a greater portion of the investment capital being assigned to IT. It seems like many of the companies have had a stereotyped way of thinking. While they've been thinking of reducing IT costs, they seem to have missed the bigger picture. In many cases, a little bit of extra investment in the right IT initiatives, can help optimize their business and hence save overall costs.

To better understand, let us take a little deeper view into the increased spending by companies in the SAP related initiatives. Many companies have increasingly invested a lot of money into ERP (Enterprise Resource Planning) over the past many years. Specifically, many companies have implemented a lot of their ERP processes using SAP. Over time, due to an increased need to have a single IT platform (and other needs like costs, etc), companies have gone ahead customizing SAP to implement a lot of other business processes.

Today, many of these companies have been spending a lot of money to customize SAP to implement some business processes that help them differentiate from their competitors (strategic initiatives). These costs are primarily to manage this customization and the resulting problems/complexity. The truth of the matter is that SAP was designed to manage resource management initiatives/processes and not to strategic initatives/processes. Trying to implement strategic business processes in SAP has resulted in unnecessary expenditure and a resultant growth in complexity.

The above is just one example of how companies catch the tiger by its tail and lose controlove rtheir IT infrastructure. The solution is NOT in cutting these costs, but in investing in the right IT initiatives. Information is the key to any business. By effectively utilizing this information, companies can get deeper and better insights that can add value to their businesses. On the other hand, designing the right and optimal strategic business processes can help businesses reduce costs.

This month's McKinsey Quarterly article titled Managing IT in a downturn: Beyond cost cutting suggests some interesting ways for companies to look beyond cost cutting. It also presents some interesting facts and figures to support the same.
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