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The Margin Q4 2020

The Margin Q4 2020

My first thought on readinga report at the beginningof this year that China waslocking down 10 millionpeople in Wuhan was one ofincomprehension. Then, it all seemed so faraway, and it would take me a little while torealise we were all in this together. SouthAfrica responded in a timely and responsiblemanner, and we appear to have largelydodged the bullet, at least in comparisonto other countries. Still, I think we have yetto feel the real effects of those months ofhibernation on the economy and the channel.IT budgets are almost certainly going toshrink, and while you’ll be hard pressed tofind a CIO who’ll admit they’re abandoningplans for accelerating digital business, Iwonder how they’re going to do it with lessmoney, staff and equipment.

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Still, there is some cause for optimism.Enterprise software could rebound quitequickly, driven largely by the acceleration ofdigitalisation plans by companies that nowhave to support a distributed workforce.There will also probably be increaseddemand for datacentre kit, driven by demandfrom both hyperscalers and enterprises.
In Gartner’s John-David Lovelock’ssummation, `companies have more IT to doand less money to do it’. This will lead themto cutting back on cellphone and printerrefreshes, for example, leading to lowergrowth in devices and communicationsservices. He reckons technologists willuse the cash they’re saving in those areasto accelerate digital business, and will be spending it on things like IaaS or customerrelationship management software. Healso says digital transformation will not besubject to the same ROI strictures that werein evidence before 2020. The mandate for ITwill now be one of survival, not growth.
Speed is of the essence, and Gartner hascome out with some timely advice on howcosts can be optimised. First, items thatwill hit the budget in one to nine months’time must be either eliminated, reduced,or suspended. These could be monthly orquarterly costs, or those incurred by pay-as-you-go. Cash is still king; in fact, it’s now theemperor. Target items that will have a realcash impact on the profit and loss statement.Take a hard look at payments that have notbeen spent, or committed to. Read contractsagain, paying attention to renegotiation andtermination clauses. Gartner says that aquarter of the average IT budget is spent oncapital expenditures, and it may be worthconsidering if there are any cuts that can bemade here. It also has sage advice when it comes toplanning on cost reductions, saying manycompanies don’t cut deeply enough the firsttime, and have to revisit the exercise again(and, in some cases, a third time). This canbe damaging to morale.
Nondiscretionary costs should alsobe looked at, such as infrastructure andoperations, and there may be savings to behad by reducing usage or service levels. ITstill needs to keep the lights on, but perhapsthe lights can be switched off when noone’s in the office. Fixed and variable costsshould also be examined. For the former,look at what can be eliminated, while withvariable costs, what can be both reduced oreliminated? All these measures will need to beconducted with the steady hand of asurgeon; cut too much and the organisationmay be irrevocably damaged; too little, and itmay not survive.

Matthew Burbidge
Editor
matthew@itweb.co.za



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