Why CIOs should hold off on slashing their IT budget: Gartner VP

Inflation is hurting everyone right now and especially those in the IT sector, budgets have already begun to be slashed but Stewart Buchanan, VP analyst at Gartner explained that it might not be necessary.

Buchanan said back in the 1990s when IT was strictly “back office,” IT cost cuts had less business impact. But today, IT is front office and even revenue-generating, so it is no longer easy to cut without damaging business performance.

He explained, “In response to the current economic turmoil, organisations are using digital technology to realise operational efficiency and cost savings and to transform their company’s value proposition, revenue and client interactions.

“This means a steady IT budget is necessary to push these digital business initiatives forward. In fact, Gartner forecasts that worldwide IT spending will increase 5.1 percent in 2023.”

Buchanan explained it is paramount that CIOs continue to have access to funding. Without money for transformation, costs cannot be restructured.

“Many organisations mistake inaction for a cost saving but instead accumulate technology debt. In addition, when executives fail to increase the CIO’s budget in response to inflation, it doesn’t reduce the cost of IT or business demand for performance-enhancing technology,” he said.

When under pressure to cut IT budgets, Buchanan said it mostly stems from a failure to articulate the connection between technology spending and business outcomes.

He said, “If the board or C-suite mandates technology spending cuts, the CIO should present a business view of IT spending against business performance. Creating a business view empowers business executives to see the relationship between the two.

“Improving business results is the best protection against technology spending cuts. For example, customer relationship management spending is less likely to be cut when it is driving sales growth.”

CIOs must engage business stakeholders and make them effective advocates for technology spending at the board level, Buchanan said.

“Conduct a risk assessment with the business to show how IT budget cuts risk damaging business performance or costing the business more.

“For example, ask your stakeholders to identify the IT services they believe cost more than they are worth. Together, investigate the business impact of cutting or withdrawing IT services to validate requirements, and balance the risks of service reduction or removal with the cost of risk mitigation. In this scenario, stakeholders have all the information to make an informed decision,” he added.

For those CIOs facing cost-cutting situations, Buchanan said it is almost impossible to rapidly cut spending without some form of risk.

“Within the short time frames involved, CIOs must explain the risks to business stakeholders to share responsibility for risk acceptance,” he said.

“Given the urgent nature of the emergency, CIOs should assess the effectiveness of spend reduction ideas by how much they will reduce spending. Focus on the amount of reduction that can be realistically achieved within the time period. Reduction targets typically take precedence over other priorities until safely exceeded. Then CIOs can deprioritize actions that have the most negative impacts on business risk and value,” he ended.