IT Must Drive Efficiency During Recession

by Tabrez Khan    Mar 04, 2009

The global recession, or the slowdown in the Indian context, is in full-flow now, evidenced in quarterly financial results of companies, auto sales figures, PC shipments, the Sensex, industrial growth indices, overall budgets of companies and finally their Information Technology (IT) budgets.

All these indices are being reported lower in 2009, IT budgets especially so. Businesses are turning to cost-cutting measures to tackle falling bottom lines and reduced cash flows.

And IT is one of the core areas across companies, which is being subjected to ever-increasing cost cutting scrutiny. Perhaps, part of the reason is that a lot of discretionary expenditure comes under IT purview, so there s scope for rationalization there.

For instance communications-related expenditure can be a prime candidate for cost rationalization across companies. "There are various areas to reduce cost; one of the biggest and the easiest however is to cut telecom expenses," says Shirish Gariba, CIO of courier & logistics company Elbee Express. "Telecom has always been a big cost in a customer facing organization, so reducing it makes sense. However, it should be done in a manner that does not compromise services."

"Also increasing the self service model, where the customer interacts with the company through instant messaging, e-mail and increased use of video conferencing in the organization, in stead of travel, can surely bring down some cost," adds Gariba.

Elbee is also renegotiating lease rentals, which would substantially reduce the pressure on cash flows, according to Gariba. "Moreover, we have started investing more in mobility solutions which will reduce the requirement of additional PC s in the back office and cut energy and real estate costs."

Organizations are also swearing by the software-as-a-service (SaaS) model that enables pay-per-use and reduces sunk software licensing costs, even while providing scalability to match future increase in the number of users. The SaaS model also does away with the maintenance cost as it becomes the responsibility of the SaaS provider.
 
"SaaS model helps us to increase and decrease the number of licenses based on the staffing," says Gariba.

And if the concept of incurring a bit of cost now to achieve long-term consolidation benefits is appealing, there’s virtualization to look at. Virtualization enables combining a number of physical servers into a single hypervisor that has logical partitions (LPAR) with each LPAR functioning as a separate server. So a number of physical servers can be replaced with a single virtual server.

This saves the cost of several physical servers, the space required to house them, the energy costs for cooling and maintenance expenses, besides being easily manageable. The utilization rate that can be as low as 15 percent with physical servers can go up to 90 percent in case of virtual servers.

"The case for virtualization is compelling," says V S Manikkam, CIO of FMCG company Henkel CAC which is looking at cutting its capital expenditure by at least 30-40 percent in 2009.

"Organizations like us concerned about underutilization of assets, rising energy costs, improving efficiency in IT infrastructure, simplifying physical architecture, and the constant pressure to reduce technology expenses are adopting server virtualization in the hopes of reaping its potential benefits."

Virtualization provides a smaller footprint for companies to achieve more benefits across the entire enterprise, adds Manikkam. "Virtualization promises tremendous savings because it offers ways to create discrete environments in which to develop and test software functionality. The real benefit however is moving virtualized machines into the production and operating environment enterprise-wide."

However, with the slowdown hurting profit margins of companies across the spectrum, and even cash flows getting affected, new investments even in cost-saving and efficiency inducing technologies would be a tad restrained. These will have to be coupled with getting more out of the organization s existing IT assets.

In fact, several analysts including Gartner s Partha Iyengar suggest getting more out of less will have to be one of the key responses to the current recessionary business climate. Any effective strategy to counter the slowdown would factor in better use of existing infrastructure and getting more out of it, improving business processes and implementing technologies that would bring in more efficiency and reduce long-term costs, according to Iyengar. 

Concurs Arun Gupta, CIO of prominent retail chain Shoppers Stop, "IT budgets are under pressure. CIOs have to think innovatively to reduce total operational expense and where possible renegotiate with service providers and internal customers to bring down the overall spend."

Some of the key cost-cutting initiatives according to Gupta are;

  •  Networking and service provider aggregation across data and voice
  •  Server and storage usage and consolidation
  •  Outsourcing contracts (tactical or strategic) review and rationalization of vendors
  • Increasing operational efficiency with automation across the company thereby improving effectiveness
  •  License rationalization based on usage

However, with so much focus on IT-related cost-cutting, does IT feel like a scapegoat in the entire cost rationalization exercise across businesses?

"I.T. cannot be given a step-motherly treatment in any organization since it drives business," says Manikkam. "Hence even in the current economic meltdown, we do get special budgetary approval to implement specific applications required to run business operations."

Shirish Gariba agrees saying, "There may be a mindset that IT is a cost centre but I don t think IT is a scapegoat in organizations today as not only IT but all the functions are mandated to reduce cost."

Gariba’s statement pretty much sums up what the current business climate mandates, which is not so much cost-cutting but increasing efficiency to get more out of less. And IT will increasingly be called upon to walk that tightrope.