There have been some postings on this subject recently “Managing IT in a Recession” by Thomas Wailgum and “IT Budgets Frozen by Recession, Survey Shows” by Denise Dubie in Network World as examples, but I think we need to consider this recession (if we’re actually in one after yesterday’s market rebound of over 900 points on the Dow) as an opportunity. The extent to which these potential opportunities can be acted upon will depend on how the CIO is viewed. Is he or she part of the inner circle of the CEO and CFO and viewed as a strategic thinker or more of tactical player on the team. For the tactical players, I’ll address their opportunities first.
There maybe, though I think more likely are, significant possible cost savings within your IT budget. Moreover, these cost savings are not from the reduction of staff but represent reduced vendor charges and enhancements to your IT architecture. One of these areas for potential savings that I’ve discussed in the past on several occasions (“Evaluating the Alternative Desktop – The Time Is Now!!!” and “Pursuing An Open Desktop, Why Not!”) is taking a serious look at alternative desktops. It has been estimated that the cost of upgrading all of Microsoft’s software on the desktop could easily eclipse $1,000 per desktop. This includes costs driven by the required software upgrades such as remediation of applications for Vista, new desktop hardware and employee re-training costs, in addition to the licensing costs from Microsoft. Initiating a project to evaluate an alternative desktop such as Open Source or Google Apps can generate savings in several ways. First, you might find that you can eliminate all Microsoft software on the desktop through an Open Source offering such as Novell’s SLED 10, a comprehensive Open Source desktop solution. Second, you might want to pursue a mixed environment that eliminates the most costly elements of a proprietary desktop. This could include implementing Open Office as a desktop productivity tool or evaluating Google’s e-mail and application offerings. Finally, seriously initiating such an investigation will most likely cause Microsoft to become more competitive with it’s product offerings and most importantly pricing. No matter which course one pursues, I can almost guarantee that significant savings will be identified and captured by your organization.
The other opportunity in this area addresses the cost savings that can be produced through simplification of you computing and network architecture and incorporating new virtualization strategies. There is clearly an opportunity to reduce hardware costs with the unknown being the pricing strategies of key software providers such as Microsoft and Oracle. Here again considering a strategy of moving to Linux and Open Source solutions along with virtualization of your computing environment might be an option to consider and to highlight in your negotiations with current vendors.
Now let’s consider the strategic application of technology to your organizations. Here are some examples of opportunities to fundamentally transform organizations that I have observed as a CIO.
In publishing, a significant cost of producing the product is referred to as the manufacturing costs (essentially printing the newspaper, magazine or book) and the distribution of the product to the customer. What if the cost of producing and distributing the hard copy product could be totally eliminated through software and the Internet. This would obviously be a massive transformation of the publishing industry. Circulation would have to reconsider many of their basic premises along several dimensions. First, the product could be essentially free or nearly free to the consumer. Second, the market for the publisher’s product would be instantly global, since there would be no cost to global distribution and global subscriptions would need to be pursued to drive new advertising opportunities. A potential down side to be considered would be customers lost who don’t have home computers with high speed network access or who simply prefer a hard copy product. The publishers would need to reorient their advertising sales efforts to a global marketplace. Editors would need to produce products that were tightly integrate with information sources through embedded links to take maximum opportunity of the electronic medium. Advertisements could be stored in a national database and the publishers could simply link to them. The opportunities here are gigantic but my bet is that it will take time for publishers to fully recognise the opportunity. My guess is that the newspaper industry, which is quickly going out of business with subscriptions declining and with them advertising revenues, may be the first to see the light. One international newspaper already making this transition is the Christian Science Monitor.
The Federal government spends billions to pay for software used by state and local governments to administer Federally mandated programs that are to various degrees funded by the Federal government. Having served in state and local government Medicaid, TANF (Temporary Assistance For Needy Families) and Food Stamps come to mind. These programs are largely administered under Federal guidelines (ie., read this as requirements) with some Federally approved exceptions. This area is a prime opportunity for a collaborative software initiative as is being pursued by universities and colleges with the Kuali Foundation. This Open Source community is jointly developing administrative, research, student and infrastructure applications on a jointly funded collaborative basis. What is the savings opportunity from this strategy? In the case of Medicaid I know that Oregon is implementing a new system at a cost of over $70 million, 90% Federally funded. If all States spent a similar amount to upgrade their aging Medicaid systems, the total costs would exceed $3.5 billion. I can’t imagine that through a collaborative open source initiative a state-of-the-art systems to administer state and local Medicaid programs could not be built for a tenth of this cost or approximately $350 million. It is imperative that the Federal government pursue this collaborative software development strategy.
Again having served in state and local government, it is essential that they pursue a strategy of web enabling substantially all of their services such as licensing and enrollment in human services programs. One state that has made remarkable progress in this area is Florida, which I visited several years ago. They have completely web enable enrollment in their primary social service programs and in the process saved the state approximately $75 million annually. They have improved customer service through state-of-the-art call centers and since their applications are on the web, children of retired parents living in Florida can assist them enroll in these programs even though they are in another state. Again, it is imperative that state and local governments pursue this web enabled strategy.
So what separates potential cost reduction programs within IT from strategic programs aimed at business transformation. Essentially it is the vision and commitment of senior executives. This includes the Board of Directors, CEO, CFO and business unit heads. I believe that both of these areas could be promising and that the CIO is in the best position to determine how his/her organization should proceed. What do you think?
William A. Crowell, Principal
Magellan Associates, LLC