How CIOs Can Defend Against IT Budget Cuts
IT cannot continually reduce expenses without negative business consequences. CIOs need to inspire stakeholders to fight damaging cuts to IT budgets.
CIOs are often tasked with quickly reducing IT expenses. This may be due to external events such as market volatility or in response to internal issues including changes at the business level, a need to shift spending elsewhere, or a decline in business performance. The board of directors or the C-suite frequently impose reductions in IT service spending without considering business damages.
When pressured to reactively cut costs, CIOs can respond opportunistically by starting with the easiest IT expenses to cut, such as technology updates and upcoming contract renewals. However, this can create new business risks that CIOs tend to be reluctant to inform stakeholders about, in case they hinder the achievement of cost reduction goals.
Often, the root cause of pressure to cut IT budgets stems from a failure to articulate the link between technology spending and business results. CIOs must involve stakeholders to combat damaging cuts to IT budgets, reconnecting technology spending to business performance, and building more productive relationships with executives to make more informed technology decisions.
Motivate by reporting technology spend against performance data
One of the most powerful actions a CIO can take is to present a business view of IT spend, allowing executives to see the relationship between spend and results. For example, customer relationship management expenses are less likely to be reduced when these platforms support sales growth. The CIO’s drive to improve business outcomes is the best protection against cuts in technology spending.
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Generate reports showing the share of IT spend for each business unit measured against key performance indicators. For example, a healthcare provider could present IT spending at various regional hospitals against quality of life metrics at each location.
Use this performance insights to challenge misperceptions about IT spending and business outcomes among executives, boards, investors, and funders. Turn business leaders into technology champions by showing what’s at stake if IT spending is reduced. This will help motivate business leaders to view technology as an investment to be protected, not a cost to be reduced.
Prevent spending cuts that create false economies
Many IT organizations focus their metrics on new technology investments, neglecting ongoing IT operations. This can perpetuate the dangerous illusion that operating expenses for technology can be reduced without consequences. Successful organizations use capability models, value streams, or outcome measures to demonstrate the broader business value of technology spending. However, in the face of impending reductions in IT spending, you may not have time to adopt these best practices.
Before making cuts, perform a risk assessment with business stakeholders to identify how the cuts could potentially harm customer value or business resilience. CIOs need to alert executives to protect their business from short-term, excessive cuts that lead to false savings, savings that end up costing the business more.
Technology costs don’t simply disappear when items are removed from IT budgets. Reducing IT spending only shifts the problem, shifting spending to business units where it risks being generated and managed less efficiently and causing unmanaged technology debt to accumulate.
CIOs should ask their teams to note the technology costs that are taken out of the IT budget. Ask stakeholders to identify IT services that they believe cost more than they are worth. Measure the business impact of removing or removing these IT services, then balance the risks of reducing or removing services against the cost of risk mitigation to enable stakeholders to make informed decisions.
Engage Business Leaders to Improve Technology Spending Decisions
CIOs should always consult and inform stakeholders about IT spending plans, instead of making business decisions and accepting risk on their behalf. This makes company stakeholders more effective advocates for technology spending at the board level.
Business units sometimes dispute technology spending and request a budget cut due to arbitrary charges to company revenue and overly complicated cost models that don’t match actual spending. CIOs should review the fees received by business units against what they spend on their behalf. Actively listen to business stakeholders and work to resolve objections related to technology costs, as they may only object to accounting practices, not actual spend.
CIOs should also build an advisory team of technology, business, and financial experts to target areas where spending is seen as disproportionately high or inefficient. A detailed and unbiased forensic investigation overcomes misperceptions, eliminates unnecessary inefficiencies, and applies technology more effectively to increase business value. CIOs can highlight these results in standard technology spend reports to show business advocacy.
In cost-cutting emergencies, CIOs rarely have enough time to fully consult and engage business leaders. However, ill-informed executives often waste more time challenging decisions they don’t understand. CIOs must provide business leaders with the information they need to more eloquently and effectively appeal to the CEO, CFO, and board against damaging cuts.
Stewart Buchanan is a VP analyst at Gartner focusing on the economics of digital technologies in the enterprise. Buchanan has expertise in supply and demand management through specializations that include IT asset management and data collection to support lifecycle chargeback of digital technology costs. Gartner analysts provide additional analysis on IT spending and CIO trends on 2022 Gartner/Xpo IT Symposiumwhich will take place October 17-20 in Orlando, Florida.