By Irma Fabular
Gartner, Inc.
As the ongoing COVID-19 outbreak continues to force a reduction in enterprise spending, IT is one of the areas where many businesses are feeling pressure to tighten their belts. When organizations hear the term “cost optimization,” they often equate it with “cost savings” or “cost-cutting.” However, a strategic and programmatic approach to cost optimization equips organizations to survive through financial headwinds and unknowns, like those resulting from the current COVID-19 pandemic.
The process of IT cost optimization requires collaboration between the CIO and other executives to evaluate spending and cost drivers. This is typically done by calculating how IT costs impact the delivery of IT services, as well as their effect on business costs and revenue. Yet these discussions often neglect to evaluate the impact of IT spending across other business units (BUs) in the organization. CIOs who successfully optimize IT costs do so by teaming with other C-suite executives, particularly the CFO, to collaborate in enterprise cost optimization initiatives.
Here are 10 techniques for IT cost optimization that CIOs can explore to navigate budget constraints in today’s volatile business environment.
- Implement shared services
Some CIOs leverage IT shared services across business units to drive economies of scale. Most savings and cost reductions can range from 15% to 20% of service costs in 18 to 36 months, and the highest savings can reach over 25%.
- Adopt a cloud-first policy where appropriate
Opting for a cloud-first policy offers a spectrum of capabilities ranging from infrastructure as a service (IaaS) through software as a service (SaaS). While many organizations choose cloud services for increasing agility, flexibility and scalability, they also experience cost efficiencies over time. To achieve cost savings, perform strict cloud governance or risk seeing increases in infrastructure and application costs if governance is weak.
- Consolidate enterprise data centers
As organizations expand their operations, the cost of maintaining a traditional data center will increase. This drives some IT organizations to shift their data centers to data-center switching architecture. Through data center modernization and consolidation efforts, cost savings can range between 10% and 20% of a data center budget.
- Rationalize and standardize enterprise applications
The application portfolio represents a large part of an IT budget. CIOs who standardize and rationalize their application portfolios can reduce and control costs. Savings can range between 15% and 25% of the application budget.
- Improve IT financial transparency practices
Understand how IT services are being delivered and what the associated costs are for IT operations. Gartner refers to this as IT financial transparency. Work with CFOs and finance personnel to associate general ledger entries (asset-based view) to technical costs and related costs for business services. Such transparency in enterprise IT spending enables you to deliver business value and optimize costs via IT services.
- Focus on IT demand-side spending for greater business cost optimization
Approximately 96% of enterprise operating expenses occur outside of IT, which presents significant opportunities to reduce IT spending. By partnering with your BU peers across the organization, you can evaluate business processes, resources and capacity to determine where IT can improve productivity, efficiency and effectiveness.
- Implement robotic process automation
Leverage technologies like robotic process automation (RPA) and artificial intelligence (AI) to analyze and identify patterns that can then be used to make strategic business decisions. These technologies can identify new insights from data and automate or augment processes that are inefficient for humans to perform.
- Evaluate IT asset management practices
CIOs often overlook asset management capabilities, and this oversight leads to increased IT operating costs. Shift IT asset management (ITAM) responsibility from “tracking” individual assets to corporate governance of IT and technology assets. Evaluating ITAM practices can achieve cost savings of 10% to 20%.
- Evaluate digital business transformation ideas
Invite business stakeholders to contribute cost optimization or technology application ideas. Share any savings generated from these idea-generating sessions with the BU and then potentially start a cycle of continuous reinvestment. Such a partnership can increase visibility within BU IT spending and mitigate redundant IT expenses.
- Optimize the workforce
Use workforce management application capabilities like automation of manager experience or virtual assistants for routine and common tasks to reduce staffing costs. Implement bots to augment the capabilities of human workers and enable a more productive work environment.
As you determine which of these 10 suggestions you can initiate or continue to gain short-term cost savings, consider how you will also want to institutionalize IT cost optimization as an ongoing discipline.
Irma Fabular is a Senior Research Director at Gartner, focused on public sector technology and service providers. She supports a research agenda that includes market forecast and demand, growth opportunities, potential risks, competitive landscape, and emerging business and technology trends.
