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“What’s All This Talk about Cost Optimization?” by Joseph Provenza

by Debbie Wilson  |  October 12, 2018  |  Comments Off on “What’s All This Talk about Cost Optimization?” by Joseph Provenza

There is a lot of discussion on the topic of cost optimization these days, especially in midsize enterprises (MSEs). That is not hard to understand given limited budgets and other constraints of smaller organizations. But this is not any different than it has been over the years as organizations are always looking for ways to save a few dollars on the expense side of the business. After all, it’s no fun spending hard-earned money just to run the business. But is there more to it than that?

In today’s world of technology and services, there are a multitude of ways to save some cash in the IT operation. Standardizing the technology portfolio is a great way for MSEs to better leverage scale in their product purchases, consolidate maintenance budgets and take a bit of pressure off of the IT staff. There are also a multitude of options in today’s infrastructure market that allow IT operations to consolidate several appliances into fewer, or even one appliance. That can have a significantly positive effect on maintenance budgets (and the aforementioned IT staff).

cost op

What about managed services and the cloud? Surely we can save money there. Well, there’s a catch to that one. Cloud and as-a-Service (XaaS) offerings can sometimes save money; but sometimes they actually increase operating expenses. So we need to scratch that one off the list, right? Well…

Cost optimization is really not just about saving money. It is actually about making the most efficient use of resources and that isn’t just money. MSE IT organizations typically spend just under 40% of their budgets on staff salaries and benefits. Are we really making the most effective use of our personnel? What if cloud and managed services allowed us to hire less expensive (or just less) staff. Even better, what if these services allowed us to repurpose our staff to higher level activities such as strategically helping the business to optimize its use of technology and improve operations. Now we’re onto something. So, maybe cost optimization isn’t always about saving. Sometimes it might be about investing. What is the long term payback? Well, it seems that almost all advances in business are coming through technology. If we had CIOs and technology staffs that were largely free of non-differentiating activities (those that could just as easily be done by a service), they might be better able to strategically guide the business into, not just cost optimization, but maybe operations optimization, which could lead to product optimization, followed by customer satisfaction optimization, and then revenue optimization and, finally, profit optimization.

So, there is more to cost optimization than just saving a bit of money. And, like all things significant to the business, it must be approached thoughtfully and strategically. Done properly, it will yield great benefit; certainly more than just a few dollars off of the expense side of the business.

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Category: applications  erp-information-technology  erp  

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Deborah R Wilson
Managing Vice President, ERP Strategy Team
12 years at Gartner
20 years IT industry

Deborah Wilson, a recovering Gartner research analyst, leads the Gartner ERP strategy research team. Read Full Bio

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