Careful With That Axe

Careful With That Axe

Cutting IT costs can only take you so far. You also need to invest in talent management

The recent economic storm that has battered economies worldwide has sent companies scurrying to take cover. Many have quickly turned to IT cost-cutting plans in an effort to staunch the flow of red ink. However, attempts to drive down technology costs may be taking some firms in the wrong direction. The headlong rush to reduce IT costs in the short term can compromise many companies’ ability to improve productivity and profitability in the longer term. We believe that by focusing on talent management, CIOs can deliver higher value results at lower total cost. The immediate challenge for senior IT executives is to redirect IT investment in order to cultivate, reward and retain the most critical IT talent — the “IT stars”.

Technology has long been heralded as a key to cost reduction and it is often assumed that a greater use of IT will create a kind of virtuous circle of continuing cost reductions. In fact, the search for ways to commoditise and cut IT costs actively discourages needed investment in talent management structures that could help the CIO retain highly-skilled staff at the critical interface between IT and the business lines.

For that reason, companies must learn to differentiate between IT activities that are truly “commoditisable” and where costs can be safely cut (such as infrastructure, hardware and systems standards), and the specialised processes that create unique value for the firm (such as risk management, new channel or new product development, and customer analytics and predictive modelling).

Any cost savings from cuts in commodity activities should be candidates for reinvestment in “specialist” areas where success depends on IT stars gaining a deep understanding of how businesses create value.

This two-pronged approach to IT using both talent and cost management in equal measure is important. Many complex technology projects are never satisfactorily completed and, far from cutting costs, become a drag on profitability. Having the right team in place can help a project avoid this fate. IT success depends on people, not technology.

Put the Spotlight on Talent

Haphazard cost cutting raises the danger of underinvestment and losing ground — and good people — to competitors. To mitigate those risks, IT executives should concentrate on two talent-related imperatives:

1. Recognise that deepening business knowledge in selected IT teams is critical to success. This will be especially true in any area where there is a ‘build versus buy’ decision, because the need to make this choice signals that customisation and business knowledge will be decisive in determining the project’s success. CIOs should put in place opportunities for staff to increase their knowledge of the business: internal IT business training courses, scholarship funding for professional qualifications in their field of business, mentoring for rising stars and cross-training within the business when appropriate.

2. Build the right talent mix. The right mixture often turns out to be fewer, more skilled and higher paid local staff, combined with lower-cost offshore workers who are also highly skilled. This shift can deliver cost savings and a more concentrated investment in technology talent. Too often, firms have focused on the shift to offshoring without commensurate enhancement of onshore roles throughout the organisation.

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