Sixty-five percent of CIOs believe that the main barrier preventing organizations from achieving continuous optimization of IT costs was related to mindset, according to a recent Gartner Inc., survey of 2,053 CIOs. After years of tactical cost-cutting, it can be difficult to get everyone in the organization to utilize all company resources to work together in the same direction with the same goal. However, CIOs felt that, if organizations were properly motivated and moving to achieve the same goal, they would make a greater impact on savings.
“Organizations don’t often achieve the desired results from their optimization initiatives, and costs end up returning into the business,” said Sanil Solanki, Gartner research director. “CIOs should consider incorporating five key principles into their organization’s cost optimization practices to form a basis for continual optimization. These principles are geared toward avoiding the danger of tactical cost initiatives, which may seem to generate savings in the short term, but can mean costs returning into the business in the long term.”
To continually optimize IT costs and avoid dangers that can be created from tactical cost-cutting, Gartner recommends that CIOs should incorporate the following five key principles into their cost optimization initiatives to ensure ongoing success of the business:
- Transparency: Higher maturity IT transparency practices are seen as a prerequisite for better supply and demand decisions, and they enable many enterprises to optimize costs and cut costs the right way, while preserving what is most important to the enterprise. IT business services must be defined and validated by the business for IT transparency and cost optimization to occur. The effectiveness of transparency needs to be considered through defining the business outcomes. This is not possible until IT and the business have agreed explicitly on what IT provides the business and what the business needs from IT.
- Agility: One of the most significant factors on the path to continuous optimization depends on the ability of the organization to become more rapidly adaptable to internal goals and external conditions. The challenge of optimizing IT costs isn’t just about trying to reduce the unit cost of IT, but trying to keep a balance between lower unit costs and sourcing IT in a flexible way so that the organization is able to remove or add resources/costs in response to any changes, from both internal and external factors.
- Accountability: In order for IT to be fully optimized, both the supply and demand side must be reviewed. Too often, organizations see optimization as how to best supply the demand for IT. This can create a culture where IT becomes reactive to the business needs and not proactive enough to be able to influence demand. In order for IT to be continually optimized, leaders must take ownership of the futures of their departments. At a minimum, leaders must engage with the business to manage the capacity, features and functions that IT provides. If IT leaders can better predict, with some degree of certainty, the demands on IT, they will be in a strong position to source IT in the most optimal way. One strategy to make the business more aware of its demand for IT is to use techniques such as chargeback and showback.
- Simplification: In terms of cost optimization, simplification is about reducing complexity in order to reduce costs. IT systems are inherently complex, but a lack of standard platforms, inconsistent business processes, and poorly defined IT services and service levels are more likely to drive up IT costs.
- Discipline: Organizations that are able to demonstrate continuous improvement and deliver on the initiatives planned see cost optimization as a discipline and not as a one-off or discrete project. The principle of discipline ensures that cost optimization has an accountable owner and is led from the top (normally by the CIO). It is essential to proactively manage cost optimization and think of longer-term cost targets, with dashboards and metrics to measure improvement, instead of waiting for targets to be handed down from the top management. Organizations that do this well often create a team including professionals from outside of IT to ensure optimization solutions consider business outcomes and constraints rather than purely technical specifications.
(For additional information, contact: Gartner, Inc., www.gartner.com.)