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Gartner says Changing the Cost Structure of IT Will Become a Business Imperative for Most CIOs
Analysts Discuss the Move Toward Variable-Cost Models in IT during Gartner Symposium/ITxpo 2008, October 12-16, in Orlando
STAMFORD, Conn., October 14, 2008 —IT departments are struggling to keep pace in a world that is moving at breakneck speed, and the IT industry is entering a period in which it will not only be possible to change the cost structure of IT, but it will be an imperative for many CIOs, according to Gartner, Inc.
“Across all operating areas, organizations are taking operating efficiency to a new level. This is being exacerbated by challenging economic times,” said Barbara Gomolski, managing vice-president at Gartner. “At the same time, organizations need to be more responsive to changing market conditions. The traditional acquisition model of buying hardware and software, and depreciating it over time, does not allow organizations to quickly shift its IT investments, or cut costs rapidly.”
Gartner analysts discussed the need for IT organizations to consider variable-cost models at Gartner Symposium/ITxpo 2008, which is taking place here through October 16.
“The message for IT is clear; business needs and expects greater agility from IT,” said Ms. Gomolski. “The current approaches to project prioritization, resourcing, agility and governance are clearly not satisfying customer needs. A new approach to IT delivery models and sourcing options is required that allows IT organizations to be more responsive to the needs of the business.”
Today, IT spending is heavily weighed by fixed costs. Almost two-thirds of the average IT budget is fixed, at least in the short run. IT outsourcing is the most well-known way to move fixed costs to variable, but it is not the only technique organizations will employ. Gartner analysts said they expect some organizations to come up with new models, such as joint ventures and shared data centers as a means to reduce the fixed costs associated with IT.
Ms. Gomolski said that fixed-cost models burden organizations with assets and large amounts of depreciation, making the business less responsive. She said that the trend toward user provisioning of IT requires a more flexible acquisition model that gives greater agility in both IT and the business.
Going forward the burgeoning number of technology as a service (TaaS) offerings that will emerge during the next five years will give firms new acquisition models. In the area of staffing, reducing the number of salaried IT professionals and shifting to a model of using more contract labor will move more fixed costs to variable costs while compensation changes – such as putting more pay into the performance-driven category – can also help reduce fixed costs.
“The variable-cost model is certainly something that most organizations should be evaluating as part of a wider investigation into the changing cost structures of IT,” said Ms Gomolski. “However, we do not recommend that all firms aggressively move toward a variable-cost model in IT, nor do we suggest that variable cost models will always be less costly than fixed-cost models. What is important is that the cost model of IT is a lever that the business can use to balance the need for growth while managing cost and risk.”
Prominent industry trends such as TaaS and the need for greater business flexibility will increase the importance for more variability and IT leaders need to recognize and balance the strengths, weaknesses, opportunities and threats of variable cost structures. Gartner expects that some of the biggest challenges will come from the businesses internal capabilities, such as demand management budgeting and forecasting and vendor and asset management, all of which will need to evolve to exploit new acquisition models.
“At the end of the day, IT leaders need to let the primary business model of the business in which they operate guide their decisions around IT cost structures,” said Ms Gomolski. “While a general shift from fixed to variable IT costs in IT will result from overall industry trends - such as the way software providers choose to sell their products - individual companies can accelerate or decelerate the move. Moreover, in these troubled economic times, CIOs need to remember that choosing the least-cost approach to solving today’s technology needs may become the most expensive, least-effective in the long run.”
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About Gartner Symposium/ITxpo
Gartner Symposium/ITxpo is the IT industry's largest and most-strategic conference, providing business leaders with a look at the future of IT. Nearly 6,000 senior business and IT strategists will gather for the insights, tools and solutions they need to ensure their IT initiatives are key contributors to and drivers of their enterprise's success. Gartner's annual Symposium/ITxpo events are key components of attendees' annual planning efforts. They rely on Gartner Symposium/ITxpo to gain insight into how their organizations can use IT to address business challenges and improve operational efficiency. Additional information is available at www.gartner.com/symposium/us.
Contact:
Christy Pettey
Gartner
+1 408 468 8312
christy.pettey@gartner.com
About Gartner:
Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,000 associates, including 1,200 research analysts and consultants in 80 countries. For more information, visit www.gartner.com.
