Companies feeling the pain of the economic crisis are cutting their IT budgets, but - according to Grant Bodley, GM of Dimension Data Middle East and Africa - this is doing more harm than good.
“Executives should rather use this economic downturn to reprioritise their IT budgets to enhance critical business priorities, from sales support to customer service. IT investments often deliver more value to a company's top and bottom lines - by creating efficiencies and increasing revenues - than any savings gained from traditional IT cost cutting.”
According to Bodley, companies looking for ways to improve business efficiency and save costs should rather outsource.
“The sourcing of IT services from specialist external service providers allows the business to acquire an industrialised approach to operations where strict conformance to process and procedure ensures maximum availability of service to the business.”
Bodley adds that benchmarking ensures the services are obtained at competitive rates. Retained IT staff can focus their time and energy on IT innovation.
Outsourcing booms
Research house BMI-TechKnowledge states outsourcing is the fastest growing component in the South African IT market. Bodley concurs, saying outsourcing accounts for the largest portion of the total IT services market. Outsourcing is predicted to have the fastest growth rate over the next five years, with a compound annual growth rate of 7.7%. Bodley says outsourcing currently accounts for 44% of the total local IT services market.
According to him, the adoption of newer technologies has been proven to reduce IT operating costs. “Belt-tightening will actually drive faster migration to innovative new technology solutions and related acquisition models, such as hosted virtualisation services, hardware as a service, software as a service, IP-based telecommunications, and enterprise Web 2.0 applications,” says Bodley.
New international regulations for the financial industry are also on the cards and Bodley predicts there will be a greater need for companies to prioritise funding of software and services in order to enforce compliance.
“Effective IT governance is an increasingly important element of an organisation's compliance and corporate governance programme, because many regulations apply to an organisation's information, which is housed within its IT systems.”
Bodley says given these factors, it's critical that companies think twice before they start slashing IT budgets in order to weather the global economic storm.
“Targeted investments can generate efficiencies and revenue growth that surpass any savings that might come from reducing a company's IT budget.”
Companies are cautious
Irnest Kaplan, MD of Kaplan Equity Analysts, says companies are more cautious and are pulling back from nice-to-have technologies and are rather focusing on mission-critical technologies and the infrastructure they have now.
“The current economic times are tough and corporates don't want to think out of the box right now to revamp their entire system, even though it might save the business costs in the long-run,” he notes.
The global recession is resulting in widespread job cuts and Kaplan notes that companies trying to keep their skilled people might find it's cheaper to outsource. However, he notes that outsourcing is a broad term and would depend on the company and level of expertise required.
"There are examples when outsourcing benefits both parties and in other instances it can be a failure. In particular specialised areas, where skills are expensive, it then makes sense for companies to outsource.
“Many companies are outsourcing just for the sake of trying to cut costs. They should instead be taking a leap forward and improve the way their technology operates by putting in converged solutions, such as IP telephony convergence, which might be expensive up-front, but running costs would be a lot less.”
Frost and Sullivan analyst Lindsey Mc Donald claims more companies are considering outsourcing today compared to seven years ago. “Total cost of ownership and capital expenditure are reduced significantly through outsourcing, but it does not necessarily mean benefits will be seen immediately. It's expensive to find and retain skilled IT people and competition is getting fierce. We expect to see outsourcing grow by 7% to 8% within the next five years.
“The Nigerian government is now pushing business process outsourcing and the African continent is more aware of it. We will be releasing a report on the growth of this trend at the end of the year.”
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