Chief information officers are often tasked with rapidly cutting IT spending. This may be due to external events such as market volatility or in response to internal issues, including changes at the corporate level, a need to shift spending elsewhere or declining business performance. The board or C-suite frequently mandates IT service spending cuts without accounting for their business damage.
When pressed to cut costs reactively, CIOs may respond opportunistically by starting with whatever IT expenses are easiest to cut, such as technology refreshes and upcoming contract renewals. However, this can create new risks for the business—risks which CIOs tend to be reluctant to inform stakeholders about, in case they get in the way of meeting cost reduction targets.
Often, the root cause of pressure to cut IT budgets stems from a failure to articulate the connection between technology spending and business outcomes. CIOs must engage stakeholders to push back against damaging cuts to IT budgets, reconnecting technology spending to business performance and building more productive relationships with executives to support better informed technology decisions.
Motivate by reporting technology spending against performance data
One of the most powerful actions a CIO can take is to present a business view of IT spending, empowering executives to see the relationship between spending and outcomes. For example, customer relationship management spending is less likely to be cut when such platforms are supporting sales growth. The CIO’s drive to improve business results is the best protection against technology spending cuts.
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Generate reports that show each business unit’s share of IT spending measured against key performance indicators. For example, a healthcare provider could showcase IT spend across various regional hospitals compared with quality of life years metrics at each location.
Use this performance information to challenge misperceptions about IT spending and business outcomes among executives, boards, investors and funding bodies. Turn business executives into technology champions by showing what is at stake if IT spending is reduced. This will help motivate business leadership to see technology as an investment to protect, not a cost to cut.
Prevent spending cuts that create false economies
Many IT organizations focus metrics on new technology investments, overlooking ongoing IT operations. This can perpetuate the dangerous illusion that technology operating expenditure can be cut without consequences. Successful organizations use capability models, value streams or outcome metrics to demonstrate the broader business value of technology spending. However, when faced with imminent IT spending cuts, there may not be time to adopt these best practices.
Before making cuts, conduct a risk assessment with business stakeholders to identify how reductions could potentially damage customer value or business resilience. CIOs must alert executives to protect their enterprise from shortsighted and excessive cuts that result in false economies—savings that end up costing the enterprise more.
Technology costs do not simply go away when items are removed from IT budgets. Cutting IT spending only shifts the problem, moving spending into business units where it risks being sourced and run less efficiently and causing unserviced technology debts to accumulate.
CIOs should instruct their teams to keep note of technology costs that are moved out of the IT budget. Ask stakeholders to identify the IT services they believe cost more than they are worth. Measure the business impact of cutting or withdrawing those IT services, and then, balance the risks of service reduction or removal with the cost of risk mitigation to enable stakeholders to make informed decisions.
Engage business executives to improve technology spending decisions
CIOs should always consult and inform stakeholders about IT spending plans, instead of making business decisions and accepting risks on their behalf. This makes business stakeholders more effective advocates for technology spending at board level.
Business units sometimes challenge technology spending and call for budget reduction because of arbitrary charges against business revenue and overcomplicated cost models that do not match actual spending. CIOs should review the charges received by business units against what they spend on their behalf. Actively listen to business stakeholders and work to resolve technology cost objections, as they may only be objecting to accounting practices, not actual spending.
CIOs should also build a consultative team of technology, business and financial experts to target areas where spending is considered disproportionally high or inefficient. A detailed forensic and impartial investigation overcomes misperceptions, eliminates wasteful inefficiency and applies technology more effectively to increase business value. CIOs can highlight these results in standard technology spending reports to show business advocacy.
In emergency cost-cutting situations, CIOs rarely have enough time to fully consult and engage business leaders. However, uninformed executives often waste more time challenging decisions they do not understand. CIOs must provide business executives with the information they need to appeal more eloquently and effectively to the CEO, chief financial officer and the 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 both supply and demand management through specializations that include IT asset management and gathering data to support the life cycle chargeback of digital technology costs. Gartner analysts are providing additional analysis on IT spending and CIO trends at Gartner IT Symposium/Xpo 2022, taking place October 17–20 in Orlando, FL.