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Cost-cutting in IT departments hits staff and salaries, says new study from Info-Tech Research Group

When enterprise IT departments have to make cuts of over 5% of their budget, they are most likely to reduce staff, cut salaries, and eliminate vendors and outsourced contracts to achieve targets, says...


September 1, 2008  


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When enterprise IT departments have to make cuts of over 5% of their budget, they are most likely to reduce staff, cut salaries, and eliminate vendors and outsourced contracts to achieve targets, says an Info-Tech Research Group study conducted this summer.

Companies in the health care, transportation and manufacturing sectors in particular frequently achieve any necessary budget cuts through layoffs, citing rising fuel costs as a key driver for cost-cutting.

“Since the dot-com crash, IT departments have been running lean to avoid making large-scale budget-cutting actions again,” said Aaron Hay, research consultant with Info-Tech Research Group. “Many IT managers have been working with the same or reduced budgets year over year, with a quarter of them seeing budget reductions of more than 10% in 2008. They could soon be asked to give up more in view of the economic picture and escalating energy costs.”

The Info-Tech study involved 167 surveys and 60 personal interviews with senior IT leaders at companies from a diverse mix of industries, primarily in the U. S. and Canada. Companies surveyed said that IT staff reductions have typically been comprised of:

• 44% entry-level and intermediate employees;

• 19% management staff;

• 17% contractors;

• 15% senior staff; and

• 5% consultants.

While cutting staff and salaries can deliver quick bottom-line benefits, reductions can also have a negative impact on morale of remaining staff and their ability to maintain IT service levels, the study noted.

As well, the research firm said that revenue-generation of the overall organization is negatively impacted in one-quarter (24%) of businesses surveyed.

“Our study found that staff cuts have a larger and more detrimental effect on the entire company due to increased workloads and damaged morale than other cost reduction options,” said Hay. “It’s not always wise to make that quick cut.”

Companies facing cutbacks should carefully consider all aspects of their business and their IT department spending to make wise decisions, the study said.

Many can often avoid large-scale layoffs if they implement staff training enabling employees to cover multiple functions and make staff cuts gradually, but that requires advance planning and best practices over time, Hay said.