Three quarters of Canadian and U.S. companies are ready to make cuts to their IT spending, according to a Canadian analyst firm.
Firms that remain optimistic about maintaining budgets intact may need to wake up and become more aware of current financial realities, says London, Ont.-based Info-Tech Research Group.
Info-Tech’s survey was conducted earlier this month. 75 per cent of the 23,000 firms polled are at least considering the possibility of cuts to their IT spending in response to present economic uncertainties.
Companies surveyed ranged from small businesses to large enterprises.
Less than one-quarter consider it “unlikely” cuts will have to be made.
“Clearly, there’s a much higher level of pessimism about IT budgets,” says Andy Woyzbun, lead analyst at Info-Tech. He said the survey uncovers a sense of “doom and gloom” about the economy.
It’s surprising there are any companies still left that believe they can weather the economic storm, he adds.
Given the tumultuous economic environment, the analyst says IT managers would find it “impossible to predict” what the near future will hold, but it is best to start planning for some budget pain now.
But forecasting the immediate future at least is pretty simple for the Honda Canada car manufacturing plant at Alliston, Ont.
“It’s 100 per cent likely,” the plant will be affected by the economic downturn, says Gregor Averell, manager of the plant. “We already have our targets for the next three years [and] have to reduce our budget by 14 per cent.”
That decree was handed down to Avarell by his headquarters last June. The Canadian auto manufacturing sector was experiencing pain because of another economic blip – the sudden rise of the Canadian dollar compared to the American greenback.
Add to that the likelihood of decreased sales in cars worldwide, and it’s a recipe for a three-year budget cut plan.
More companies should be following Honda’s lead and planning for IT budget reductions, Woyzbun advises.
He recalled that just a year ago the attitude was far more bullish among North American companies.
“Organizations were not anticipating a downturn, and not really doing contingency planning. Like their governments, organizations were assuming the good ship Lollipop was going to continue moving along calm seas.”
Not enough companies are taking a pre-emptive approach to dealing with shrinking revenues, according to Info-Tech’s report.
Even so, only one-third of companies consider IT budget cuts “very likely” while about 20 per cent think it will “probably” happen and 20 per cent consider it “possible.”
Lack of preparation for budget cuts could force IT managers into fire-fighting mode when it comes to crunch time, Woyzbun says. That could lead to cuts being made for the best short-term cost savings, while inflicting more pain over the long term.
“If you haven’t thought about it yet, start now,” he says. “When credit is tightened, the command from the CFO to cut budgets will come quickly and you won’t have six months to implement the changes.”
Honda’s Alliston plant is beginning multiple assessments to determine what cuts can be made.
“We’re looking at all of our software and trying to determine whether we have overlap and whether we need the products.”
The plant is considering re-negotiating agreements with some outsourcing partners and software license providers to see if savings can be found there.
That’s exactly the type of planning that Woyzbun is advocating.
Reworking contractual relationships “tends to be the biggest payback and the least painful,” Woyzbun says. Companies could negotiate agreements to be put into a different price category.
Companies leasing equipment or licensing software will face tough decisions when those agreements expire and it’s time to renew.
He urged companies “not to over-buy” in terms of quality and specifications. “Whether its storage or servers or desktops or laptops, make sure you’re not paying a premium for a level of support or quality you don’t need.”
Also, companies shouldn’t limit themselves to projects being considered. Take a look at projects already underway and consider bringing down the hammer.
“It takes courage to stop the train,” Woyzbun says. “It might make more sense to bury a project if it doesn’t smell right.”
Although it’s painful, organizations also have consider making staff cuts – whether contract workers or full-time employees – when budgets must shrink by 10 per cent or more.
Making big budget cuts without reducing staff can’t be done by most organizations.
The Honda plant has already let go two full-time staff members and is currently considering how many contracts will be cut. The plant splits its workers about half and half between salary and contracts.
“We’re just a small piece of the big cog,” Averell says. “By doing this, we hope to return to the profitability levels we had five years ago.”
That means the plant can continue to operate over the next three years as the budget cuts are made.