SIDEBAR: Five Steps to Flexibility

How CIOs can free up funds (and keep them for IT use)

1. Consolidate vendors and systems.

2. Buy out long-term contracts and consider short-term agreements.

3. Benchmark their cost position against competitors'.

4. Partner with business unit leaders to forecast their need for IT investments and make the case for reallocating fixed costs.

5. Develop choices and alternatives for reallocating IT budgets to keep them away from the CFO's axe.

SIDEBAR: When You Need to Get Flexible

Three signs that you should increase your variable spending

1. Your industry is undergoing rapid or dramatic change. If you're in the airline business, financial services or any other industry facing transformation, flexibility is crucial.

2. Your fixed costs are creeping higher every year. The more complex your systems become, the larger your fixed costs and the harder it becomes to react to business changes. It's time to excise old systems and trim maintenance costs.

3. You're falling behind your peers in innovation. Even in industries that encourage stability and high fixed costs, such as utilities and universities, you need to keep abreast of newer technologies that will help keep your organization competitive in the long run.

SIDEBAR: Small, Fast and Flexible

Budget flexibility can help CIOs maintain IT service levels in hard times

For CIOs at small and midsize businesses, boosting cost flexibility can be much more straightforward than for their counterparts at large companies. Greg Meyer, CTO at start-up iJet Travel Risk Management, which brought in an estimated $US6.5 million in revenue in 2004, says he has a far easier time getting consensus from colleagues to change his spending plans than he did when he was CIO of a larger IT services company. At large companies, he says, the long-term IT projects that cost tens of millions of dollars gain a life of their own; it's hard to stop those projects, even if they're clearly headed for failure. In a smaller organization, everyone at the senior level has a relationship with the board, which ultimately controls expenditures. "You can turn on a dime a lot more easily if everyone in the organization is helping you turn," Meyer says.

Chris France, CIO at Little Diversified Architectural Consulting, which reports annual revenue of $US40 million for 2003, credits his 90 percent flexible posture to the close contact he maintains with other top executives and the reputation he has built for being tough on IT spending. France admits that his case is extreme and probably wouldn't work for everyone, however. For one thing, paying cash and avoiding financing for hardware prevents him from investing that money and could have negative tax implications for larger companies.

But his experience with downsizing has taught him some helpful lessons that he says could apply to larger IT shops. Radically increasing his cost flexibility allowed him to maintain IT services in drastic times. "For any company, it can be helpful to imagine what you would do if your revenue was cut in half," France says. "I was taken by surprise by the sudden volatility in this industry. We are all vulnerable to some extent."