When the economy goes bad, businesses take aim at their costs.
IT is an ever-popular target, but today CFOs should think twice before swinging the axe.
Since the last slump at the start of the decade, much has changed in the corporate IT function.
As McKinsey Quarterly points out, "[T]echnology budgets are larger, businesses have automated more processes, employees make greater use of tech-based productivity tools, and e-commerce has moved to the core of day-to-day operations."
Smart enterprises have spent a good deal of time on IT governance, making sure their IT systems and strategies are tightly aligned with their business.
There are few companies today for whom communications and IT are neither core nor critical. A recession is an opportunity to sweat these assets further, or realign them to cut opex and improve efficiency.
James Kaplan, a McKinsey principal, believes that "almost all IT organizations can and should reduce IT spending this year", but this is difficult because of the complexity and the differing priorities of business units.
More specifically, existing IT capacity, like servers and storage, can be shared and application maintenance spending capped.
Organizations can renegotiate some contracts to reflect changing market conditions or accelerate efforts to move operations offshore. After an active 2008, in which three-quarters of announced contracts were new deals, Gartner expects outsourcing to be highly competitive in 2009,
Businesses with limited cash reserves may need to sell off IT assets. Those with strong cash flow may be able to invest to improve IT performance.
In a severe slump like this one, a "zero-based" exercise may be useful, thinks Kaplan - that is, reimagining the company from scratch in order to identify and eliminate non-value-adding functions.
Admittedly, some CIOs see the downturn as an opportunity for an employee cleanout. In a Gartner survey of 1500 CIOs late last year, 72% said they either had the wrong skills on the staff or not enough of the right skills.
Yet attracting and retaining personnel dropped from the third priority down to number eight - quite possibly a sign perhaps that CIOs didn't see they the likelihood of making new hires, but expected to be able to offload staff with superfluous skillsets.
Times have changed, says Steve Lam, managing director of Dell Hong Kong. Ten years ago IT was very much a back-end business function.
"I wouldn't have argued it was core business. Today, banks, supermarkets, e-government all rely on IT. They couldn't function without ICTs."