Optimizing IT: The 3 Keys to IT Cost Efficiency

The modern IT operation is quite a wonderful thing. Most organizations wouldn’t survive without it, and many wouldn’t exist at all without the combination of technology and information. When declining growth, regulatory requirements, changing customer demand or supply chain disruptions occur, it’s often IT that can enable the right response from the business. Yet, like every business function, IT has core costs that, particularly in these times of restless economic conditions, need to be efficient and stable and, in many cases, require further constraints. In a recent ISG survey, we found 61% of organizations have an IT cost-savings target of greater than 5% for 2023.

Optimizing IT for cost moderation relies on three keys: understanding costs, prioritizing opportunities and managing change. We might also add an overriding principle: do all of this using a continuous, iterative, agile approach.

1. Understanding costs. Many IT leaders have an almost frightening lack of cost transparency in their organizations. Whether this is due to siloed cost categorization, limited financial reporting or lack of market comparison, without cost transparency, leaders cannot see the opportunities for restraint or savings. And this applies across all components – hardware, software, labor, facilities, etc. Cost savings in a single software package alone can represent hundreds of thousands if not millions of dollars to a large organization. Where costs are isolated or replicated by business unit or function, even the recognition of the true license cost of a single software application can be difficult to capture. Similarly, how rationalized are your rates for contract workers? Some organizations have multiple rate cards with material cost differences with the same staffing vendor. Making sure all the data is accurate across your environment is paramount.
2. Prioritizing opportunities. Low-hanging fruit, such as the rationalization of rate cards, can certainly trim some costs. Other opportunities may take more time and effort. These may include using invoice forensics to determine if you are paying for network or mobile lines that are no longer in use or optimizing your use of cloud storage reserves versus on-demand. One way to ensure you target and prioritize the greatest opportunities is to compare your spend by category to market peers and even best-in-class IT organizations. Use a mark-to-market approach to uncover the areas of greatest opportunity; these market comparators can also help you set targets. Then prioritize opportunities based on total value or time to value. Many opportunities are time-bound – software license, outsourcing, facility lease or subscription renewals are good examples. Include these in your plan and prioritize them based on timing constraints.
3. Managing change. Address prioritized opportunities using an agile change plan. Some organizations use an epic approach by category, with a backlog and agile team tied to each. Conducting the work in sprints also allows for work to begin immediately, even while you are understanding costs and uncovering better data – or proving outcomes using small increments to continuously justify priorities.

This approach doesn’t require a large program, either. Get your in-place teams involved, give them the recipe and ask them to make cookies! Agile teams can fold in cost optimization sprints between their feature/function backlog items and optimize their own small piece of the environment. You will likely need a broader perspective to tackle software licenses or vendor rate rationalization, but don’t underestimate all those cookies adding up to one very large pie. A cost optimization center of excellence (CoE) approach is often fruitful, combining cost transparency, larger programmatic subjects and a mechanism for sharing ideas and successes – while also emphasizing that cost optimization should be a subject every day and not just when new cost savings targets are handed down.

ISG helps enterprises drive sustainable cost savings with fact-based insights and innovative digital solutions. Join me at the ISG Digital Business Summit in London where I will be exploring these and other questions about how to build continuous transformation and an optimized IT organization. Or contact me directly to find out how ISG can help you.