One expense that can grow out of control in many businesses is Information Technology (IT)
Tweaking investment in IT increases performance and profitability and sometimes major cutbacks are necessary. Either way, it’s best to be systematic.
Here are some ways to economise on IT spending.
1. Audit your tech stack
The first step is to understand where you’re spending money now. Sometimes IT expenditure grows because of once-urgent needs, one-off projects or even failed initiatives. This results in redundancies such as multiple applications doing the same thing. Figure out what you have now and what can be cut. This process usually yields some surprises.
2. Align with company strategy
Next, revisit and restate your business goals because they should be in sync with IT decisions. It sounds obvious, but a business growing through online sales MUST have an effective e-commerce website. And this is a priority over, for example, an HR intranet, which will have less impact on business goals.
3. Evaluate the IT team
Many businesses engage a combination of employees and contractors for IT needs. Contractors are advantageous because they can be employed in peak periods and offer skills not available internally. That said, you may be spending on resources that have outlived their usefulness. Consider utilisation rates and the value they are bringing. As priorities change, look at eliminating (or consolidating) positions to reduce costs.
At the same time, create an employment environment where employee turnover is reduced. IT employees are expensive to recruit and train. Competitive salaries, flexible work arrangements, training opportunities and time for passion projects may help to retain high-performing employees.
4. Reevaluate supplier contracts
Your needs may have changed since you entered contracts with suppliers, for example, the number of seats you need or the amount of data storage. Most vendors are open to these conversations and prefer to adjust the scope rather than risk losing the business completely. You may also find software licenses which can be decommissioned because they’re past expiration dates or no longer supported.
5. Embrace cloud technology
In almost all cases, applications and data centres are best hosted in the cloud. There are rare exceptions, for example for legal or regulatory purposes. Migrating to the cloud needs careful planning but the long-term economic advantages are compelling and involve reducing capital expenditures (like servers) in favour of operational expenses.
Not all applications and databases require their own servers. Using containers, a single server can run multiple applications under a single operating system (usually Linux) without compromising performance and security. Likewise, by virtualising databases, it’s possible to query several databases at once without duplicating the data on multiple servers or manually combining databases. The result is increased speed, simplified queries, reduced bandwidth and less storage. And that means reduced cost.
7. Write off sunk costs and move on
Don’t continue investing in solutions that don’t provide value. Be decisive about moving on even if that means acknowledging projects have failed.
8. Look for quick wins
Discretionary spending may offer savings opportunities (unless the spending involves strategic projects). Likewise, variable costs like cloud data storage, the number of software licenses and consultants may be easier to cut than fixed costs such as rent, payroll and equipment leases.
9. Be strategic
There’s no reason why business leaders should be experts in IT (just like they’re not necessarily experts in accounting, tax or legal affairs). In that case, engage someone who can evaluate your long-term business and IT needs, then come up with an implementation plan. You may want multiple opinions on this since managing IT is like carpentry: Measure twice, cut once. No point in saving cost on initiatives which need to be undone later. Be in a hurry but not in a rush.
At Alliott NZ we take the time to get to know your organisation, help you to stay in touch and provide you with a level of insight that all business owners who aspire to success should embrace. Contact our award-winning team of Chartered Accountants and Business Advisors in Auckland on 09 520 9200.