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Significant and Sustained
Cutting costs while achievingbetter performance
 
2With a wide-spread economicdownturn well underway, topmanagers are prioritizing costreduction as never before—and theyare looking for new solutions andproven practices. It's inevitable thatcost-cutting efforts will land heavilyon IT since it is a significant costcenter and because it impacts costs inalmost every business activity.That's sobering news for CIOs, mostof whom have taken out plenty of cost across their IT functions in thelast few years. Most have alreadydone “the easy stuff,” and althoughthose efforts have contributed tothe bottom line, conditions andcircumstances have changed thuscalling for a new look at sustainableand dramatic cost reduction.Two areas that historically (and oftenwrongly) have received the lion'sshare of cost cutting attention arediscretionary spend and IT fundsearmarked for business growth. It’snot that these approaches to shortterm cost-cutting don’t help, of course. They can be (and often are)highly effective at the departmentand project level, where smartmiddle managers can do a fine job of prioritizing the right candidates forcuts from their points of view. Butin the case of discretionary spend, onaverage it only accounts for about afifth of today’s overall IT budget. Toooften, cuts made only in discretionaryIT spending can have unintendedconsequences by affecting IT servicequality, which in turn diminishes thevalue and demand for IT services andnegatively impacts business growth.The reduced demand prompts yetmore funding cuts. (See Figure 1.).
The current economic downturn requires a strategicapproach to cutting IT costs. High-performancebusinesses successfully reduce overall costs sharplyand for the long term, shifting spend toward ITcapability and business growth while stepping up ITperformance at the same time. Here are the threepractical steps that they follow.
Michael Nieves and Stephen Page
 
3
OperationalCost“Result of past decisions”IT Focused SpendBusiness Growth
DiscretionarySpendNon-DiscretionarySpendPre-RecessionRecession
Spendingapproach
Post-RecessionCapability GapExistingCapabilities
Impact oncapabilityReactive Cost Take Out
Timeline
Figure 1. Traditional (and often wrong) approach in a downturn: cancel IT andbusiness projects. This widens the capability gap.
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