Unlike the dot com bust, where the IT industry was both co-conspirator and victim, technologists aren't specifically to blame for the current downturn. Unfortunately that hasn't stopped them suffering just the same.

Big industry vendors are announcing fresh job cuts every week as they struggle to cope with dwindling sales while the IT departments that buy their wares are forced to cut spending and slash workers.

Not surprisingly, financial services has been one of the worst affected areas when it comes to internal IT cuts. As cash flow dried up, banks moved to shore up their businesses and make radical cost cuts and, inevitably, IT has borne the brunt of much of this restructuring.

Intelligent planning

At the end of 2008, Spanish bank Santander revealed plans to cut almost 2,000 jobs across its three UK businesses Abbey, Alliance & Leicester and Bradford & Bingley  in 2009, with some of those reductions to come from the back-office and IT. Barclays expects 400 IT posts to be scrapped from its global infrastructure and service delivery centre in the UK.

But amid this bloodbath, smart companies also recognise that IT isn't just an overhead, it could also be key to dragging their business back into the black. Just as governments around the world have adopted a policy of Keynesian stimulus to beat some life into dwindling economic heartbeats, experts agree that investment in innovation is just as important to boosting financial performance as cutting overheads.

Across-the-board cost cutting may be a reality for organisations that are fighting for survival but should always be accompanied by measured and intelligent planning for the future and discussion around the IT and business trade-offs, says Barbara Gomolski, managing vice president at Gartner in the analysts report The Four Levels of Cost Optimisation.

The headlines might be full of job cuts and redundancies but a healthy number of businesses also appear to now recognise the crucial role IT can play in delivering value. In a recent survey of 1,527 CIOs across 48 countries and 30 industries by Gartner, only one in five (21 per cent) reported a cut in their 2009 IT budget. A third reported no change in their budget from 2008, and 46 per cent reported a slight increase.

Meeting future challenges

While innovating out of a hole sounds good in theory, how many managers will have the courage to deploy new ways of thinking or new technology as they grapple with the downturn? After all, old habits at least offer the comfort of familiarity: in a downturn, you cut costs and maintain liquidity by whatever means necessary. The greatest danger in times of turbulence, according to management guru Peter Drucker, is to act with yesterdays logic.

However, while postponed investments, reductions in staff and external consultants and linear budget cuts across all services are all justifiable tactics, CIOs who have been there before know such measures can leave an IT department woefully depleted when conditions improve.

Organisations expect IT to contribute results in an uncertain economy. CIOs need to be decisive and resourceful in building an effective organisation that can meet current and future challenges, says Gartner analyst Mark McDonald.

But investing in innovation doesnt have to mean exorbitant or large scale projects. A move away from overly ambitious tech projects to the smart use of efficient and affordable IT can have real business benefits without huge upfront costs. Open source software typifies this good enough approach to technology in which companies steer clear of bells and whistles for their own sake and focus on simple technology with a definite aim.

Efficiency also means making better use of resources. A relatively small investment in server virtualisation, for example, can improve the performance of existing IT hardware and is often paid back in under a year

Software-as-a-service (SaaS) applications such as Salesforce.com also offer the opportunity to streamline business processes for a monthly, per user fee, rather than a large upfront capital expenditure on software licences.

Time to fight the flab

But while spending on new and disruptive technology shouldnt be overlooked in the quest to trim costs, it doesnt mean that bloat and waste should be ignored either. Reactive and uncontrolled investment in new IT during boom times can be just as damaging to efficiency as redundancies and budget cuts during a downturn

Most organisations today have IT infrastructures so costly to maintain that keeping them running accounts for as much as 70 per cent of the IT budget, says Roger Camrass, director of the business transformation group at Fujitsu. Thats unacceptable in a downturn and it shouldnt really be acceptable at any other time as it drowns opportunities for innovation. Inherent inefficiency means youre unable to respond to changing market conditions and opportunities.
Transparency of costs is the first step to knowing where to trim the fat. This means a detailed look at the IT chart of accounts, contracts and obligations with vendors (including consultants) and the project portfolio as a whole and asking if saving measures actually arrive in the bottom line or are offset by increasing cost in other areas.

John Bovill, group IT director at UK retail group Mosaic Fashions, whose shops include Coast and Oasis, spoke to I just before the company was reborn as Aurora Fashions after going into administration and being bought by Icelandic bank Kaupthing in March. Rationalisation is a key theme for us right now, he said. For example, we use Business Objects [business intelligence] products widely, but weve made a concerted effort to look at the numbers and types of reports we regularly run, to spot where there are overlaps and get rid of redundant reports.

Back-office enterprise resource planning (ERP) applications can also be a source of savings. CIOs are planning simplification measures in 2009 that reduce the number of ERP instances, vendors and software licences, according to Gartner. 

Think about the long term

Its not just equipment and software CIOs need to think about. Attention to people issues will be a priority, but they should avoid the knee-jerk reaction of swift layoffs.

There will be temptation to cut quickly in areas where staff are working on longer-term goals that suddenly seem less relevant, says Gartner analyst Mark Raskino. However, CIOs should not lay off the people they will need long-term and who will be hard to replace such as enterprise architects and emerging technologies staff just because their work is not an immediate deliverable.

In a volatile market, communication is critical in the IT department, agrees Bovill of Mosaic Fashions. Im making sure that my team knows at all times whats going on in the business, so that we can respond quickly to its needs. And Im not skimping on training Im using this period to think about the skills well need when conditions improve and making sure my team is primed and ready to offer them, he says.

Conditions will be tough for the next 12 to 18 months but they will be even tougher for those companies that dont take decisive steps to meet the challenges head on. Part of that is cutting back waste and fat, but its also about investment in innovative and disruptive IT.

If the theory of creative destruction the flow of resources from the untenable to the viable really does underpin capitalism as economists maintain, then the current financial downturn is entirely natural. That might not be much comfort, but it does make life simpler at least. Surviving the downturn comes down to a choice at the end of the day: be creative or be destroyed.

Photograph: Nato Welton