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Penny-Pinching All-Stars

Penny-Pinching All-Stars

For CIOs at companies with historically small profit margins, a recession means little change. Read how they make every IT dollar count

You used to pity Lloyd Taylor. Like other CIOs who work for companies in low-margin industries, he was the guy with the shoestring budget who had to watch every penny, every day.

Well, guess what? Taylor, the CIO at Cargill, a global manufacturer and distributor of agricultural and food products, is now a role model in these tighter budget times. Cargill may be a $US49 billion company in terms of revenues, but it cleared a profit margin of seven-tenths of 1 per cent, less than one cent on the dollar, in 2000. So while you've recently recalibrated your expectations about IT spending to fit a recession, Taylor has had to master the ability to do more with less - regardless of the economic cycle.

"There's only so much money to go around, and you have to make sure every dollar is well spent,"Taylor says.

Taylor uses his words like he uses his company's money: he prefers not to talk at length about frugal spending tactics. But keep his statement - and the remarks by other CIOs you will find in this story - in your pocket. They're coins that carry lessons about value.

As you read the tips culled from conversations with eight CIOs from various industries, it's useful to remember that one industry's typical profit is different from another. In bread-and-butter industries, such as agriculture, trucking, contract manufacturing and construction, where stiff market competition and price pressures mean slim profits, CIOs are used to making sure every dollar is well spent. They have a lot of practice running IT with locks on their wallet and both eyes focused on their company's bottom line. These CIOs say ROI is the barometer by which projects get approved. Fast payback is a must. Anything considered long term can take a backseat. And answer no to new purchase pitches without regret. In general, single-digit returns are what you'll find here.

The following six tips are for CIOs from the penny-pinching all-pros.

Almost New Is Better Than You Think

When it came time to update his infrastructure hardware, Byron Goodwin faced a tough situation. As much as he would have liked to buy some spanking new servers and routers, Goodwin, CIO of the wholesale groceries distributor Associated Food Stores (2000 profit margin: 9 per cent), knew his annual $US8 million IT budget just couldn't take the hit.

So when he needed new hardware, he didn't pick up the phone to call Dell or Compaq. Instead, he called a couple of resellers.

"We don't buy new equipment,"Goodwin says.

With dotcom failures plentiful and other companies seeking savings through consolidated operations, there is a lot of almost-new equipment that's available for used prices, he says. Last northern autumn, Goodwin purchased storage systems for his data warehouses through a reseller and paid 50 cents on the dollar. Instead of shelling out $US100,000 for the hardware, he paid $US50,000.

Like most companies in the grocery industry, the Salt Lake City-based company faces a crowded competitive landscape growing more intense with new challenges coming from chains such as Wal-Mart and Target, which now carry food items. Overall, the industry's average annual net profit (revenues less expenses) is about 8 per cent.

Buying used or second-hand hardware can be a plausible approach to cost-cutting, says Sunil Subbakrishna, a vice president in the IT strategy practice at Mercer Management Consulting in New York City. CIOs need to consider whether the equipment will meet users' needs, and whether maintenance costs of such hardware are higher than on new gear.

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