Your IT costs need to come down. What can you afford to cut?

I’ve worked in several organisations where cost reduction became a major focus, usually because something outside IT had changed significantly. During COVID, then working in construction and manufacturing through the energy crisis, supply chain disruption and geopolitical uncertainty, the pressures were different but the message eventually became familiar. Operating costs were increasing, margins were under pressure and the business needed us to spend less.

The overall target came from above, although the original number wasn’t always the one that reached the teams. Sometimes an additional margin had been added along the way, leaving leaders working towards a target without fully understanding the business expectations behind it.

The CIO would bring the leadership team together, explain the challenge and ask everyone to return with ideas.

Everyone starts looking for the pennies

For IT, the discussion usually falls into familiar buckets: connectivity, hardware, software and licensing, external services and workforce.

Each leader goes away to see what they can spare, then returns with a number that falls well short of what the CIO needs. Another conversation follows, this time with more specific examples and a clearer message about what might happen if the team cannot find enough savings.

A few more opportunities appear, but often one or two leaders carry much of the effort. They understand the business predicament, look beyond the obvious and come back with meaningful proposals. Before long, they are leading the initiative and trying to persuade everyone else to look as deeply as they have.

In the more difficult situations, the conversation eventually moves towards rebuilding the budget from zero, asking leaders to justify every service, activity and role needed to keep the organisation functioning.

By then, considerable time has passed and the pressure hasn’t eased.

The easiest cut can have consequences we haven’t considered

Contractors are often among the first to leave, partly because reducing the permanent workforce is more complicated. Yet the organisation can lose knowledge, experience and the very capability needed to deliver the changes ahead.

Meanwhile, some existing activities and roles remain largely unchallenged because changing them is difficult, uncomfortable or caught up in established arrangements.

Hardware replacement gets pushed out, creating a saving today while leaving ageing equipment and a future bill. A supplier’s scope gets reduced, but the work still needs doing somewhere. A service disappears, and only afterwards does another team explain how much it depended on it.

I’ve seen decisions made within one leadership area without enough understanding of the consequences elsewhere. The saving looks sensible until something breaks, at which point we discover how interconnected the environment really is.

Someone once described across-the-board cost cutting to me as trimming the same amount from every branch of a tree. You make the tree smaller, but the unhealthy branches remain while the healthy ones have less room to grow.

I’ve never forgot that because asking everyone for the same percentage can leave us with a smaller budget and many of the same underlying problems.

While we are cutting, the business needs more from IT

At the same time, demand from the business can increase.

They need technology changes to reduce production costs, improve productivity or make their own savings achievable. They need projects, specialist support and sometimes new solutions. IT is now helping the business spend less while facing pressure to reduce its own capacity to deliver.

This creates two different conversations that can easily become confused. What have we saved against the costs of running IT today, and what additional investment do we need to help the wider business achieve its ambitions?

Without that distinction, IT can make genuine savings and still appear to be missing its target because new demand has increased the overall budget.

The workforce is watching all of this too. People hear that costs must come down, see colleagues or contractors leave and try to work out what it means for them. Where communication is limited, uncertainty fills the gap.

In my experience, the programme becomes much harder when leaders are protecting separate budgets, the business continues adding demand and nobody has a complete view of the choices or their consequences.

Putting this into practice:

1. Establish the target and the baseline clearly. Agree with Finance what the organisation needs to achieve, by when and against which starting point. Be explicit about whether you need cash savings this year, a lower recurring cost or both. Keep deferred spending and avoided future costs separate from actual reductions.

2. Give leaders clear expectations based on the opportunity. Make each leader accountable for contributing, while recognising that some areas have more scope than others. Examine all cost buckets consistently, then allocate targets using evidence rather than assuming an equal percentage will produce the best result.

3. Bring the right people into identifying opportunities. Go beyond the leadership team where appropriate. People closer to the work often understand duplication, unused services and unnecessary demand better than those reviewing the budget. Ask relevant external partners what value they can bring and how they could contribute.

4. Assess the proposals together. Establish one programme with the authority to review opportunities across IT, involving Finance, business representatives and relevant specialists. Examine dependencies, service consequences and delivery risks before approving a reduction. Give each saving a clear owner.

5. Evaluate the saving after the consequences and transition costs. Consider what it will cost to make the change, when the benefit will arrive and what capability could disappear. Apply that assessment to employees, contractors and suppliers alike. Protect the expertise needed to deliver the business priorities and the cost programme itself.

6. Put business demand and trade-offs on the table. Show savings against existing IT expenditure separately from new investment needed to enable business savings. Agree what the business will stop, defer or accept differently, and take unresolved choices to executive leadership. Additional demand needs a funding and priority decision.

7. Keep your people informed. Explain the purpose, progress and likely implications of the programme as clearly as you can. Be honest about what you know, what remains undecided and when people can expect further information. Make clear what you need from them and how they can contribute.

8. Report realised benefits and check whether they will last. Distinguish proposals from approved changes and savings that Finance can confirm. Show short-term benefits alongside longer-term improvements, and keep checking whether you have removed a cost, moved it elsewhere or simply postponed it. Share progress so people can see how their contribution is helping.

Before approving a cut, I would ask whether we understand what the business will lose, what it will gain and who is accountable for making the saving real.

That conversation can reveal considerably more than a percentage against a budget line.

I work alongside CIOs and their teams through part-time coaching and advisory, helping establish a credible cost programme, challenge proposals and work through the business decisions behind them. Having worked through these pressures in different organisations, I can help you bring the opportunities and consequences into one view, so you can make decisions you can explain and stand behind.