Large firms guilty of reactive IT cost cull

The Deloitte report, entitled How low should you go?, found that reducing third-party spend, outsourcing and sacking contract and permanent staff were the main ways that firms were cutting costs.

The report argues that most organisations are approaching IT cost reduction in the wrong manner, allowing cost reduction targets to be set by those with limited understanding of IT risk.

In addition, the report noted that many firms approach cost stripping in a tactical, reactive way which can lead to delayed projects and force reliance on out-of-date systems.

"IT departments are scrambling to cut costs but are unwittingly storing up problems for the future," said Deloitte partner Neville Howard.

"IT is reacting to business pressure by delivering short-term tactical savings that lack ambition, rather than driving long-term benefit.

Howard added that cutting back too much will leave businesses ill-prepared to take advantage of the upturn in the economy when it happens.

"IT skills are scarce and organisations that have not retained the expertise they need may have real challenges attracting new staff when markets strengthen, particularly if they have a 'hire and fire' reputation," he said.