Develop a plan before a crisis hits and budgets are suddenly cut.
April 12, 2016
Contributor: Jo Bennett (originally this article appeared on Smarter with Gartner)
It’s the year that your company’s customer self-service portal project is finally set to get underway. Then the news comes in from the CFO’s office: Everybody can expect midyear budget cuts. The portal project suddenly looks like a nice idea that will need to be moved to the back burner.
That’s the “wait-and-see” approach to cost optimization. Now consider the same scenario, under the leadership of a proactive CIO. Since the Great Recession, the CIO’s overall strategy has included conducting a cost-benefit analysis of all initiatives that require IT services. He already has a list of cost optimization initiatives that includes application rationalization. These initiatives would serve the business’s interests far better than delaying the portal project (which is projected to cut customer service costs while helping with customer revenue and retention goals).
“All organizations attempt to optimize IT costs,” said Jim McGittigan, research VP at Gartner. “But those that do it best focus on cost optimization as an ongoing discipline, not as a one-off exercise.”
Create a transparent view of costs
As a CIO, your first priority should be to make all IT-related activity costs transparent. Next, benchmark how your organization’s spending compares to your peers’. If, say, your data center costs are above industry averages, that area might be a potential candidate for cost optimization.
Above all, don’t approach cost optimization as a one-time activity. “Regularly scan the marketplace to stay abreast of what other organizations are achieving to gain knowledge of what is really possible,” advised Mr. McGittigan.
Consider “top 10” cost optimization ideas
In the customer portal example, the CIO had a running list of cost optimization ideas that would be of greater benefit to the business than delaying the project. Mr. McGittigan shared the Gartner “Top 10” list of cost optimization ideas:
- Create a shared-service organization for some or all IT services
- Centralize, consolidate, modernize, integrate and standardize technologies
- Leverage cloud services
- Increase IT financial transparency to better manage both supply and demand
- Utilize zero-based budgeting on the right cost categories
- Rationalize and standardize applications before cost-saving initiatives
- Optimize software licensing management and IT asset management capabilities
- Improve procurement and sourcing capabilities
- Invest in Mode 2 capabilities such as agile and DevOps
- Re-examine how end-user computing is delivered
Cost optimization initiatives offer a wide range of potential value that generally reflects the accompanying complexity and risk. For example, optimizing procurement processes is relatively straightforward, but offers low to moderate value. Launching the next big customer innovation or implementing cost-savings technologies with the business (such as launching a customer portal) will be more difficult, but generally offer more potential value.
Champion the ongoing initiative
CIOs are often reactive about cost optimization, said Mr. McGittigan. “Many times, they wait for cost reduction targets to be handed down before organizing cost optimization activities.”
Rather, CIOs should be the champion of this ongoing initiative. Part of their job is helping all parts of the business understand that while IT cost optimization includes cost-cutting, the focus should be on eliminating low-value activities. As a CIO, engage business leaders to ensure that optimization reflects business priorities and that you’re looking at IT costs in the context of end-to-end business processes.