The unremitting demand for change that has become essential to business survival means that there’s a heightened appreciation amongst business leaders of IT’s role in creating the business agility that is so critical to dealing with external challenges.
Indeed, planning for and reacting to change is one of the key competencies of successful organisations, increasingly so as the need for business agility is heightened by demand for digitisation of services and unprecedented market challenges and customer expectations.
In times of uncertainty, organisations tend to be reluctant to make new investments. Instead, they look inwards at making the most of what they have. This makes it crucial for organisations to ensure their use of IT is transparent and provide as much value as possible, particularly when fully and correctly utilising their budget.
Uncertainty puts a premium on agility and adaptability: the best way to prepare for where you’re going tomorrow is to have perfect visibility of where you are today. IT leaders need to have confidence that every penny of their IT budget is pulling its weight, which means understanding both the true cost of IT and the value that it provides to the business.
At Coeus we are increasingly concerned that, according to our recent survey of 130 IT leaders of large organisations, 88% of IT leaders have not yet delivered IT cost transparency and were consequently far less likely to be able to support the informed decision-making needed.
In our survey, we found that those that score highly in cost transparency are trusted as true ‘partners’ who not only understand current business issues but are able to advise on the best strategic decisions for taking the company forward. Only those IT leaders who have optimised their IT costs will be well placed to deliver this flexibility and agility.
By comparing the responses of this group with other organisations we are able to show that companies who fully understand cost transparency are better able to align business and IT, assess the business impact of changes, and support the constant demand for agility that is typical of the modern, digital enterprise.
Below is an overview of our recommended approach:
The Three Elements of IT Cost Optimisation
Too often, cost optimisation is a reaction to a challenge, not an embedded mindset. The cost challenge therefore moves from being an annual budget challenge to a continual ‘must’ for IT leaders, and an endless challenge for CIOs – just as it is for any business leader.
This usually results in the implementation of basic cost reduction techniques that provide quick wins but are often not sustainable. They may at best defer, and at worst heighten issues, such as cancelling upgrades or technology currency work, stopping contract or consultancy resources or dialling down service levels. However, for many organisations they can be an invaluable short-term fix or the start of a longer journey to effective cost management whilst cost transparency is perfected.
We recommend that a sustainable approach to IT cost optimisation requires three main elements: cost transparency, a practical and implementable approach to cost reduction and the ability to manage IT as a value-driving entity.
Step 1: Cost Transparency
As previously mentioned, our survey revealed that very few IT leaders are currently able to deliver cost transparency to the business, meaning they are able to capture, understand and report costs in a way that enables both IT and the business to better understand IT services and make improved business decisions. This failure at being able to properly show or breakdown their cost to serve is the first hurdle in being able to ensure costs are optimised. Building cost optimisation initiatives without a proper understanding of costs is akin to building a house on sand, whereby the house would be continuously rebuilt time and time again.
Cost transparency is at the heart of this. It is the art of capturing, understanding and reporting costs in a way that enables both IT and the business to better understand IT services and make improved business decisions.
Step 2: Cost Reduction: Top Down, Bottom Up Approach
In our experience cost reduction requires a blend of ‘top down’ and ‘bottom-up’ analysis on data to ensure you can implement practical cost measurement. The ‘top down’ approach is vital to enable the organisation to spot areas of spend that are off balance with expectation, i.e. network spend is 20% higher than peer organisations.
This analysis can provide an initial set of hypotheses by comparing overall costs for functional areas with comparative organisations. In order to then find reduction initiatives, these hypotheses must be tested in a ‘bottom-up’ approach, using both bench-marking data points and deeper analysis of the underlying data.
Through a series of practical working sessions with your team involved in providing the services, the initial hypotheses can be proven or disproven, therefore, identifying realistic areas for improvement. A series of implementable measures can then be designed, all of which must be considered against their likely return and the cost/time to implement them – effectively determining the return on investment for each optimisation measure.
Step 3: Managing IT As A Value-Driving Entity
In order to build long term sustainability and optimised costs, CIOs need to be more proactive and demonstrate the business leadership and commercial skills that are expected of any business leader. This is now more important than ever, as the business & IT boundaries continue to merge and CIOs play a greater role on the board. The technology function has a long history of not being able to properly explain the value it brings; linking ongoing costs, and investments, to the top or bottom line.
However, now more than ever CIOs must be driving the conversation of their function from a traditional cost centre to a value centre. CIOs that can do this well are staying relevant in the digital age. Those that are less successful at delivering transparency and supporting decision making are often seeing an increasing level of responsibility moved over to separate digital functions. The CIO needs to be proactive, commercially-minded, take risks, and will ultimately need to be willing to disrupt their own organisation.