In the race to drive digital transformation in an accelerated manner, many organizations fall into the trap of mounting their IT spend, yet not leveraging existing (or upcoming) investments to their fullest potential. While it is important to invest in modern technologies, tools, and systems to keep pace with perpetual change, what’s more important is for organizations to enable IT cost optimization to improve business outcomes, workforce productivity as well as the overall ROI from IT investments.
Gartner defines cost optimization as “a business-focused, continuous discipline that helps drive spending and cost reduction, while maximizing business value. The activity includes obtaining the best pricing and terms for all business purchases, standardizing, simplifying and rationalizing platforms, applications, processes and services and automating and digitalizing IT and business operations”.
When done correctly (and continuously), IT cost optimization can embed a culture of effective cost management – throughout the enterprise. Organizations can streamline their cash flows, improve performance and generate greater efficiencies across production, inventory, and supply chain processes. Regular cost optimization measures can also help create a flexible and agile organization while streamlining day-to-day processes to reduce costs and free up resources.
When organizational performance becomes pitiable – either due to economic slowdown, competitive pressures, or market changes – cost cut orders get passed down from executives to CTOs. Because of this, most organizations take a reactive approach to IT cost optimization and when it’s finally time to cut costs, they come face-to-face with a number of challenges and roadblocks. Here are common frustrations that come with IT cost optimization:
Organizations consider IT cost optimization as a one-time activity do so mainly because most IT-related costs are not transparent. Only a handful of C-suite managers have knowledge of how much has been invested, what tools have been implemented, and what has been planned for the future. In absence of transparency, it is difficult for IT teams to drive efforts towards IT cost optimization.
With no insight into what costs are being accrued or how competitors are investing in IT, organizations have no way of benchmarking their costs – internally or against competitors. This makes it difficult for managers to locate cost centers throughout the company and assess cuts that will yield the maximum impact.
Many organizations also lack a single resource (or team of resources) who can lead the cost optimization initiative. Because most managers are not trained or wired for an organization-wide activity like this, they do not know where to begin. In the absence of champions, they are forced to take drastic cost-reduction measures – without really having a robust plan in place.
When organizations are faced with the challenge of immediate cost savings, they try to cut corners, without realizing that IT cost optimization does not mean IT cost reduction. Rather than getting negatively impacted by the consequences (and risks) of sudden cutting measures or seeing benefits that are of limited value, organizations need to begin the IT cost optimization process with an end-to-end assessment.
IT cost optimization initiatives offer a wide range of benefits – not just in terms of reduced expenses but also in terms of accompanying complexity and risk. A well-planned approach towards IT cost optimization is what will help organizations drive maximum value. The options for cost optimization are many: from eliminating waste and duplication, implementing best practices and embracing modern technology where effective. Here are 5 strategies/tactics to keep in mind when assessing IT costs:
Legacy systems are one of the biggest reasons for massive IT bills. Because they consume a lot of resources and are difficult to maintain, they drain organizations of their costs. Modernizing legacy systems and eliminating them if necessary is the best way to begin your IT cost optimization activity.
A lot of organizations use systems and applications that have been passed down from ages (or from a recent merger). But are all these systems providing value to your organization? Do users need these systems, and if they do, are they able to use them to the maximum potential? Understanding user pain-points and re-architecting or retiring apps that offer low to medium value is also a good way to optimize costs.
Embracing modern technology like AI and IoT might seem a very lucrative business proposition, but does your organization really need these advanced tools? Before investing in any new tech or system, carry out a thorough needs assessment and follow it up with a cost-benefit analysis to truly understand how much you stand to benefit.
One of the best ways to drastically bring down your capex numbers is by embracing the cloud. Since cloud requires you to only pay for what you use, you can save up massively on data center costs including area, electricity, maintenance, support, and more. However, when moving to the cloud make sure you provision only the resources you need – or else you might end up with the problem of cloud overspend.
Lastly, be proactive about the IT cost optimization activity; don’t approach it as one-time activity, but as something you need to do on a continuous basis. Regularly examine market and competitive trends to understand what others are doing to drive optimization.
In a world where organizations are battling pressures from customers and competitors alike, embracing an IT cost optimization initiative is a good way to enable top-line growth. When done as an ongoing activity, IT cost optimization can not only identify systems and assets that are no longer worth the money, but also help in eliminating low-value tools and processes. Empowering business leaders to consider optimization as a business priority and giving them the guidance (and resources) they need is can help in laying groundwork for breakthrough cost reductions – the kind that are sustainable, self-reinforcing, and value-driving.