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IT Management: Business Productivity and Cost Reduction

Abstract

This paper explores articles that report on results of the relationship that exists between business productivity, cost reduction and IT management. The paper will be based on numerous studies that have been conducted on productivity and cost reduction as key issues in IT management (Carden & Egan, 2010). The significance of the consequence of IT for businesses around the globe, particularly in light of the international monetary catastrophe, has augmented the call for an enhanced perception of the detailed geographic resemblance and dissimilarity of IT administrative and technological trends (Carden & Egan, 2010). Therefore technology plays a major role in improving the business productivity and reducing the operating cost in any business (Guimaraes, & Liska, 1995). On the other hand, business productivity is significant to the organizations because it signifies that the organization is able to assemble the requirements required to recover its competitiveness in the marketplace (Sabherwal & Chan, 2001).

Introduction

Business productivity and cost reduction are among the core concepts that are increasingly getting great audience and preference in the modern economic world especially as regards to their application to business management and corporate governance (Efraim, Ephraim, & James, 2004). The number of studies that have been conducted by different authorities such as Society for Information Management (SIM) and PricewaterhouseCoopers (PwC) on business productivity and cost reduction as an imperative element of IT management is a clear indication that the concept is one that commands considerable interest in the field of business management especially in IT related fields (Wilbanks, 2008). In a research conducted by SIM in 2009, it was found that out of the 170 US companies assessed, a whole thirty three of them considered productivity and cost reduction as number one challenge in their businesses. This is a clear indication, therefore that these concepts are key challenges in IT management (Luftman, & Kempaiah, 2008). This paper is a study of articles that have studied surveys conducted to determine the effect of business productivity and cost reduction as challenges in IT management and this will also form the focal point of interest of the paper. Through the paper, areas where these two concepts have a positive impact on IT management and related areas of study will be studied and inferences made to the extent of their effect on such businesses.

From a follow-up survey that was done by SIM in 2010 as synergy to the one that was conducted in 2009, many IT businesses were found to be inclined towards investing in ventures that use IT approaches to achieve greater productivity at relatively lower costs (SIM, 2010). In the same research survey, it was found that many IT firms appreciate the fact that technological advancements that have been experienced in the last decade have enabled IT professionals to realize the different challenges and difficulties that these changes have brought to this professional field prompting them to look for alternative approaches to counter these effects from rescinding the progressive strides that have been (Yoon, Guimaraes, Broome, & Singh, 2005).

The SIM, (2009) survey recorded that 41.9% of US based companies selected productivity and cost reduction as major concerns in the 2009 fiscal year. These results are shown in table one below.

Issues of concerns Frequency Percentage
Industry productivity and cost lessening 72 41.9%
IT and company configuration 46 26.7%
Trade nimbleness and alacrity to market 34 19.8%
company procedure re-engineering 12 7.0%
IT dependability and competence 8 4.7%
Totals 172 100.0%

This means that improving on efficiency should be the major goal for IT dependant enterprises (Wilbanks, 2008). The business’s reaction to the role of IT is unique to this recession. In past recessions, company administrations purely requested the responsible IT leaders to cut their budgets (Sabherwal, & Chan, 2001). In this downturn, which has proven to be worse than the preceding ones, there is an emerging trend in trying to redefine the effectiveness of IT in the industry as businesses are more inclined to reduce on expenditure and thus are relying on IT leaders to correspond with the needs of the industry (Thomson, 2010).

According to a survey of CIOs and IT executives, spotlight on severity via industry and IT cost savings remains tough (CIO, 2004). In another separate investigation by the SIM, a majority of the US based companies still ranked productivity and cost production as the major challenges to deal with and thus establishing a broad edge as far as IT issues are concerned (Linda, 2010).

Literature Review

Improving on the effectiveness of IT has been the major tool towards actualizing greater productivity with reduced production costs as highlighted in the SIMposium of 2009 as a result of the survey conducted by SIM which has a greater bearing in IT surveys and solutions (Luftman, Kempaiah, & Rigoni, 2009). The results tabled during the above mentioned SIMposium are not any different from the previous year’s survey findings which also indicated that productivity and cost reduction had a commanding lead in the issues concerning IT industry. These results reinforce the point that, the majority of US companies are concerned with how to improve on the role of IT in order to maximize on more production using the low cost advantage strategy (SIM, 2010). Wilbanks, in his article, “IT Management and Governance in Equal Parts” also had expressed his concern with the current trend by emphasizing the fact that more businesses were in dire need of a revolution in the IT industry and the need to improve on production efficiency appears to be on the rise with IT dependent companies.

O’Brien (1999) reports that IT and business alignment were among the second major concerns as per the SIM results by then. In response to this Yoon & Aiken, (2000) analyze that, these outcomes signify that information technology directors were not slicing jobs as part of their financial prudence efforts in the similar way as they did in preceding fiscal recessions. This is by far the greatest setback in the IT industry and thus it should be classified a major concern for the industry players (Efraim, Ephraim, & James, 2004).

Virtualization is an infrastructure venture with significant communication behind it (Yoon, & Guimaraes, 1992). Organizations are destined to improve on infrastructure such as cloud and grid computing though they are not among the major challenges which require intervention. Virtualization is on the list because its costs are comparatively small and it is moderately fast to position as analyzed by the SIMposium survey of 2009. The survey indicated that out of the IT companies studied, 52.3% recorded a decrease in budget; 24.4% recorded an increase while 23.3% recorded a stagnant budget as in table two below.

Year 2009 Year 2010 (expected)
Trends in budget spending Frequency Percentage Frequency Percentage
Decreasing 90 52.3% 49 28.0%
Constant/Stagnant 40 23.3% 77 45.0%
Increasing 42 24.4% 46 27.0%
Totals 172 100.0% 172 100.0%

The research also estimated that there is a 28 percent chance that the companies could fall while a 27 percent chance showed that the companies’ budgets were likely to rise towards the end of the year (SIMposium, 2009). The increase in CIOs coverage to the CEO offers additional consolation to the pressure CIOs are exercising in their business premises. A 2007 SIM review elevated the anxiety when it established that the proportion of CIOs exposure to the CEOs has decreased to fourteen percent to thirty one percent. Luftman and Kempaiah in “The IS Organization of the Future: The IT Talent Challenge”, thought that the 2007 consequences were an irregularity, and the outcomes appear to have indicated that (Luftman, & Kempaiah, 2007a). In terms of submission/technology significance, commerce aptitude was at the top in the survey, server virtualization, came second and, enterprise resource planning (ERP) systems (SIMposium, 2009). The SIMposium survey also purposed to examine time expenditure by questioning CIOs on how they spend their time. The PwC (2010) survey results indicated that majority of them maximized on non-technical matters affecting the organization rather than the technical part of IT.

Method

The study relied on data from the SYMposium 2009 annual report on the CIOs, IT directors and aspiring IT executives. The SIMposium study outcomes, which were tabulated, found that many companies ranked business productivity and cost reduction as leading issues in management. This was viewed in line by aligning them with IT management of a particular organization. The study also relied on surveys from PwC. They also suggested that business productivity and cost reduction rank first in their management list based on priorities (SIMposium, 2009; PricewaterhouseCoopers, 2010). Previous findings of the two organizations indicated that 21% of US organizations sampled indicated productivity and cost reduction to be the major concerns in 2009 (SIMposium, 2009; PricewaterhouseCoopers, 2010).

Result/Discussion

Business productivity was tagged as the major concern for CIOs in the years 2008/2009 thus raising the alarm for the need to come up with more effectiveness in the IT industry in order to meet the challenges facing the industry (Linda, 2010). Therefore, productivity and cost reduction has continuously gained a leading role in a business set up. Most CIOs are mainly focusing on cost reduction and business productivity and therefore pushing the priorities of IT leaders towards actualizing IT improvements in order to satisfy and comply with the emergence of the need to maximize on IT solutions to improve on organizational efficiency (Linda, 2010).

In an IT business scenario, various factors exist which are said to play a major role in the business (Carden, & Egan, 2010). These factors include business efficiency and cost lessening, business nimbleness and pace of marketing, IT and company placement, IT dependability and competence, industry processes changes, IT planning, improve tax remissions to the government through new innovations, improved security and privacy and finally moving towards globalization of markets (Luftman, & Kempaiah, 2008). This is also among the priorities of small scale companies that want to venture into production of global products for purposes of improving on their market targets (SIMposium, 2009; PricewaterhouseCoopers, 2010).

Business productivity and cost reduction has continued to gain the popularity over time and although some organizations did not view it is as a greater concern to their organization most of the businesses had it as a priority and allotted substantial budgets to IT management (SIMposium, 2009). One of the most vital elements for any industry is output. Business vendors should call for productivity for them to stay in business. They need to major on employee motivation so as to motivate them (the employees) in order to realize high returns to strengthen their businesses. Business productivity is designed at improved productivity, or the ability to create more with less, creates incremental add to in prosperity (Luftman, & Kempaiah, 2008).

With the current economic stance, it has become apparent that reduction on cost will go along way in sustaining any type of business (PricewaterhouseCoopers, 2010). This therefore should majorly target the development of budgets that reduce general expenses of the company without necessarily laying off the employees. Research findings indicate that telecom, which is highly dependent on IT infrastructure, needs to reduce expenses in their production through reduced expenses and tracking of software (Carden & Egan, 2010). Cost reduction will also help the company to properly manage their expenses by saving up to 30% on expenses and thus channeling the funds to other more aspects of the company (Yoon, Guimaraes, Broome, & Singh, 2005).

A business premise should ensure cost reduction by use of information technology (Yoon, Guimaraes, Broome, & Singh, 2005). There exist some benefits accruing from cost reduction which can be felt from the individual level to the organizational level such as increased profits. Research by Thomson (2010) shows that the more the earnings an organization has, the more stable it is which improves the split price, improves saving chances and makes it easier to compile funds. The organization will profit by the condensed charges which may be promising by investments from cost lessening programs. The competitive stand of the organization will improve and the business as a whole will endeavor to recover the output and pass on the benefits of such programs to the public. Personnel and workforce of the organization may also benefit by amplified earnings and enhanced staff interests facilities (Thomson, 2010).

IT management which applied together with cost reduction and business productivity can aid a business in achieving the desired goals. IT management is a situation where knowledge possessions of the firm are administered in agreement with the company’s requirements and precedence (Boshart, & Cowan, 1997). Managing this accountability inside a business involves many basic administration purposes, like financial planning, recruiting, arranging and scheming, plus features that are exclusive to expertise, like change administration, software plan, network setting up and technology support (IT Governance Institute , 2003).

When IT is applied to a business setting there is value creation which is made possible by use of modern technology. This is achieved by aligning technology with the stated business strategies (Luftman, & Kempaiah, 2007b). The functions which IT administration performs include business/ IT positioning, IT domination, IT monetary administration, IT overhaul supervision, basis and IT arrangement organization. In a business setup some area with low visibility and have unnecessary high cost. The organization should aim at reducing these costs. Such business areas include mobile phones; the business should aim at a tariff that has a low cost (Rabayah, 2011).

Conclusions

In conclusion, it is important for all IT dependant businesses to devise ways that will help them improve on productivity and at the same time cut on production cost in order to attain the desired and set business objectives. Thus, it is evident that IT management is a core value in a business setting and the organization should aim at promoting it because it helps in cost reduction by application of modern technology which helps tasks to be performed much faster and at a lower cost (Weill & Ross, 2004). When products are produced at a lower cost, the business overall production cost is reduced.

IT managers should be provided with the technical knowledge and skills which are vital in helping to integrate people, new technological advancements and information dissemination with the intention of pursuing organizational goals (Weill & Ross, 2004). Plans should be premeditated to instruct administration to assist them in managing the preparation, plan, assortment, completion, use, and management of promising and congregating information and interactions expertise. Therefore, they should be provided with effective technical know-how and advanced managerial skills that are in line with integrating all the integral parts of the organization both technical and non-technical to attain the mandate and goals of any given organization.

The management distributes the benefits of business productivity to various areas with the organizations: the work force through better wages and working conditions. To further foster the management goals, the benefits should also be accessible to all the shareholders of the company through increased profits distribution, increased tax remissions to the respective government and low pricing for the company’s product consumers. The benefits should also be reflected in the environment through incorporation of environmentally friendly measures that will ensure the effective use of resources and reduced environmental pollution (Weill, & Ross, 2004).

Business productivity is significant to the organizations because it signifies that the organization is able to assemble the requirements made to the staff, shareholders and legal authorities and still maintain high spirits or even recover its competitiveness in the marketplace place. Most organizations should focus on value creation which has been made possible by the use of modern technology. They should align technology and the stated business strategies. Thus, concluded that technology plays a major role in improving the business productivity and reducing the operating cost of a business (Guimaraes, & Liska, 1995).

References

Boshart, A., & Cowan, L. (1997). Identifying the Features of More/Less Successful Business Process Reengineering Projects. Technology Management: Strategies & Applications, 3(4), 329-342.

Carden, L., & Egan, T.M. (2010). IT and Business. Journal of Information Technology Education, 9(1), 12-23.

CIO, W. (2004). Best Practice from Silicon Valley’s Leading IT Experts. New Jersey: Prentice Hall.

Efraim, T., Ephraim, M., & James, W. (2004). Information Technology for Management: Transforming Organizations in the Digital Economy. New Jersey: Wiley.

Guimaraes, T., & Liska, K. (1995). Exploring the Business Benefits of Environmental Stewardship. Business Strategy and the Environment, 4(1), 9-22.

IT Governance Institute. (2003). Board Briefing on IT Governance. Web.

Linda, T. (2010). Business productivity and cost reduction No. 1 concern in CIO survey. Web.

Luftman, J., Kempaiah, R., & Rigoni, E.H. (2009). Key Issues for IT Executives 2008. MIS Quarterly Executive, 8(3), 151-159.

Luftman, J., & Kempaiah, R. (2007a). The IS Organization of the Future: The IT Talent Challenge. Information Systems Management, 24(2), 129-138.

Luftman, J., & Kempaiah, R. (2007b). An Update on Business-IT Alignment: A Line Has Been Drawn. MIS Quarterly Executive, 3(6), 165-177.

Luftman, J., & Kempaiah, R. (2008). Key Issues for IT Executives 2007. MIS Quarterly Executive, 7(2), 99-112.

O’Brien, J. (1999). Management Information Systems – Managing Information Technology in the Internetworked Enterprise. Boston: Irwin McGraw-Hill.

PricewaterhouseCoopers. (2010). Setting a smarter course for growth 13th Annual Global CEO Survey UK snapshot. Web.

Sabherwal, R., & Chan, Y.E. (2001) Alignment between Business and IS Strategies: A Study of Prospectors, Analyzers, and Defenders. Information Systems Research, 12(1), 11-33.

SIMposium. (2009). IT Tread Survey: CIO Top Priorities in 2009: Productivity and Cost Reduction. Web.

SIM. (2010). SIM Study: Business Productivity and Cost Reduction remains top concern for IT executives. Web.

Thomson, I. (2010). Human Resource Management. The International Journal of Human Resource Management, 22(18), 15-34.

Weill, P., & Ross, W. (2004). IT Governance: How Top Performers Manage IT Decision Rights for Superior Results. Boston: Harvard Business School Press.

Wilbanks, L. (2008). IT Management and Governance in Equal Parts. IT Professional, 10(1), 60-61.

Yoon, Y., & Aiken, P. (2000). Managing Organizational Data Resources: Quality Dimensions. Information Resources Management Journal, 13(3), 5-13.

Yoon, Y., & Guimaraes, T. (1992). Developing Knowledge-based Systems: An Object-oriented Organizational Approach. Information Resources Management Journal, 5(3), 15-32.

Yoon, Y., Guimaraes, T., Broome, B., & Singh, R. (2005). Using Agent Technology for Company Knowledge Management. Information Resources Management Journal, 18(2), 94-113.

Tables

Table 1: on the most crucial management concerns

Issues of concerns Frequency Percentage
Industry productivity and cost lessening 72 41.9%
IT and company configuration 46 26.7%
Trade nimbleness and alacrity to market 34 19.8%
company procedure re-engineering 12 7.0%
IT dependability and competence 8 4.7%
Totals 172 100.0%

Table 2: on the nature of the sampled IT enterprises budgets in the year 2009 and the expected nature of the enterprise in the year 2010

Year 2009 Year 2010 (expected)
Trends in budget spending Frequency Percentage Frequency Percentage
Decreasing 90 52.3% 49 28.0%
Constant/Stagnant 40 23.3% 77 45.0%
Increasing 42 24.4% 46 27.0%
Totals 172 100.0% 172 100.0%

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