Across-the-board IT budget cuts are not the answer

Dear Bob …

No surprise, really. I just received word it’s time to cut the IT budget once again. These things happen (especially now), and I’m past the point of getting worked up about it.

[ Also on InfoWorld, Bob has some ideas on how a CIO might break the news of pay cuts | Get sage advice on IT careers and management from Bob Lewis in InfoWorld’s Advice Line newsletter. ]

The corporate style is across-the-board cuts, apportioned according to the size of your budget. This time we’re supposed to hack off another 5 percent.

My plan is to simply extend this thought process another layer down, requiring each of my managers to cut 5 percent from their budgets.

I figured it was fair, but I’ve had every one of my managers in my office complaining about it ever since I informed them of the requirement.

What do you think? Fair, or should I be doing something different?

– Cutting

Dear Cutting …

The problem with across-the-board apportioned budget cuts is that they don’t fix the problem. Instead, they probably create new ones to go along with the one that didn’t get fixed.

Budget cuts happen when the business has stopped working properly for some reason. Imagine the reason they’re necessary in your company is that revenue has been dissapointing. The question is why: Is the problem with product design, pricing, marketing, or the sales organization?

Perhaps revenue isn’t the problem. Instead, it’s that costs have gone up faster than revenue has increased. What’s the problem: poorly designed processes, poorly executed processes, deferred expenses that have finally caught up with the company, or general profligacy?

If the problem is general profligacy, across-the-board cuts might make sense, assuming everyone in the company is profligate. Otherwise, the few who have exhibited cost discipline will be the ones who are crunched the worst. Bad idea.

Bad processes or badly executed processes? Without fixing them, no cuts will help. Quite the opposite — now you’ll have the same process problems, as well as a weaker sales and marketing effort to fund the waste.

So there you are, running your department, having to pony up your share of the budget. What can you do about it? You’re on the receiving end.

Answer: You can make your cuts intelligently, which you can do if you deal with different sorts of activity in ways appropriate to how they work. Here’s how (short version):

• Nondiscretionary spending: Nondiscretionary spending pays for the activities you can’t stop doing and still turn on the lights, like data center operations and software maintenance (patches, tax-table updates, and so on). Give the managers responsible for nondiscretionary activities an improvement target and tell them they have to find ways to hit it that keep the lights on. They’ll probably start by squeezing their vendors — not a bad approach, though your vendors may not appreciate it.
• Discretionary spending: This is spending the company has a choice about. It can spend it, if it expects to make a profit on the investment, or it can choose to not spend it if it doesn’t have that expectation. Cut discretionary spending by as much as you need to in order to hit your target, after the nondiscretionary improvement targets have been factored in.

Now comes the fun part. You’ve cut the discretionary spending budget. Make it the responsibility of the company’s executive team to decide how to make use of whatever is left. It’s known as doing less with less, and it starts by making clear to everyone that nothing is free. You now have fewer developers than you used to, which means you can’t develop as much anymore.

It’s up to the leadership team to decide what the company’s priorities are.

Whatever they decide should be fine with you, unless they decide you can “do more with less.” If that’s their stance, make it clear that you can’t.

You can do less with less in creative ways, which is an entirely different matter (for example, building 80 percent solution applications that kick out exceptions for manual processing instead of trying to write code that covers all eventualities). But more with less? Development doesn’t work that way.

– Bob

This story, “Across-the-board IT budget cuts are not the answer,” was originally published at InfoWorld.com.