The GFC may be behind us, but that doesn’t mean companies have any less focus on cutting costs. With CIO budgets essentially flat, and demands for innovation increasing, IT cost reduction is on the agenda for many enterprises in 2013. Even in growing Asia Pacific economies like China, Korea and Australia, it’s still a top priority. We hear it all the time from clients and it’s one of the areas where Gartner helps its clients most.
We find that some organisations are not actually ready to optimise costs. They might have a lack of visibility into current costs across the enterprise or a lack of executive level support for the cost optimisation initiative. The organisation might have a high proportion of fixed costs in IT, which means that costs often do not go down when business volume is reduced. They might be facing extreme resistance on the part of IT users to change the way they consume IT, such as accepting lower service levels, keeping PCs for longer or getting rid of redundant systems. Change management is a critical part of any ‘cost optimisation’ program.
Many IT organisations have reached their logical limits as to how much more they can save using traditional cost optimisation tactics. They’ve already been through at least one round of cost cuts. It’s no longer enough to tinker around the edges, but instead time to make hard decisions about business units/agencies, business processes and programs. Round two of IT cost optimization is a story of big changes, strategic shifts, improved IT management practices, rightsizing IT service levels, “doing less with less,” better IT demand management and taking advantage of what new IT services the marketplace has to offer.
Gartner sees four areas of opportunity for cost optimisation, ranked by level of difficulty as well as their potential to deliver value:
IT procurement – make sure you are getting the best pricing and terms. Use public cloud services, pursue crowdsourcing for selected projects, use open source, negotiate better contracts.
- Cost savings within IT – identify and prioritise ways to reduce IT costs. Can you extend the life of systems, reduce power use or consolidate your portfolio? Reward your team for cost saving innovations.
- Joint business and IT cost savings – implement cost saving initiatives and improve business processes. How can we do things better, faster, cheaper and where can IT help?
- Business restructuring and innovation – this is often dubbed ‘transformation’. Should you shut down or add channels, cancel high-risk programs, aggressively implement teleworking or provide cloud-based services rather than just consume them?
The bottom line is that cost optimisation cannot be just a one-time project. It should be an ongoing process and discipline that cuts across all domains of IT and the business. Leading organisations run continuous cost optimisation initiatives and use IT to drive growth and innovation in the business. Leading CIOs raise enterprise effectiveness by running IT like a business. They raise the bar for IT’s performance in terms of responsiveness and productivity, and demonstrate IT’s value contributions to the enterprise.
If this is a focus for you this year, come along to one of Gartner’s briefings around the Asia Pacific region on cost optimisation strategies to be held in June in Australia (Perth, Melbourne, Sydney and Brisbane) and in July/August in Kuala Lumpur, Singapore, Seoul, Beijing, Taipei and Hong Kong.