In light of current economic conditions, most businesses are doing everything within their power to cut costs and save money. Historically, during challenging economic times, businesses have looked to their IT budgets for cost reduction over any other budget. However, the way a company goes about reducing IT spending can mean the difference between advancing to the position of market leader and falling behind the competition.

On average, 60% - 80% of IT spending is allocated to ongoing costs for day-to-day IT operations. A lesser amount, representing only 20% - 40% of the total IT budget, is allocated to IT innovation, which covers initiatives to expand the company's customer base, enter new markets, reduce costs, improve quality, and all other process improvements.

As you know, IT has a direct impact on a company's growth, productivity, and ability to adapt to constant changes in market conditions. Look across any market segment and you will find the industry leaders are companies that can innovate, adapt to change rapidly, and react quickly to customer-driven or market-driven changes.

In fact, according to Peter Weill, chairman of MIT Sloan School of Management's Center for Information Systems Research, IT savvy companies are 21% more profitable than non IT savvy companies. There are two reasons for this increased profitability. First, IT-savvy companies have maximized cost reduction by identifying the most efficient way to run their core day-to-day processes. Second, due to more standardized and digitized business processes, IT savvy companies are faster to market with new products and services resulting in more revenue. These IT-savvy companies have realized that an investment in IT innovation is an investment in long-term financial success.

It is easy for businesses to invest in IT innovation, or more specifically software innovation, during times of prosperity; however, when facing a recession, companies are less inclined to do so. Many companies view innovative development initiatives as expendable - projects they can put on the back burner until the economy recovers. However, in so doing, they are missing out on a rare opportunity to leapfrog their competitors and assume a leading position in the marketplace.

When companies are the lowest cost providers in their industry, they have a significant advantage over their competitors. So, how does a company reduce IT spending as a means to achieve a competitive advantage? One of the best strategies for cutting costs is to utilize custom software to automate work in order to eliminate day-to-day tasks and their associated costs entirely.

Automation and continuous elimination of work requires software innovation that is devoted to process improvement. If you can invest money one time to eliminate ongoing costs, the long-term ripple effect and ROI can be very rewarding. The more cost-efficient your company becomes, the more you will benefit from better expense-to-revenue ratios, lowered production and service delivery cost, and increased ability to handle the price pressures of a competitive marketplace.

In summary, expense reduction is always smart for business; however during difficult economic times, it is a necessity. With careful evaluation of your company's IT spending and an investment in software innovation, you can create a competitive cost advantage, grow market share, and come out on the other side of this recession as a new market leader. And investing in custom software that automates internal processes can be an effective way to eliminate day-to-day tasks and their associated costs.

In reality, most companies will respond to the current recession by cutting innovative IT initiatives for the coming year. However, you can change the course of your company's future by choosing a different path. Let Baldwin Hackett & Meeks, Inc. (BHMI) show you how to utilize custom software solutions for your business that will reduce costs and provide you with the flexibility and reliability to create and maintain a sustainable competitive advantage.