Free Up IT Infrastructure Costs to Fund Transformation

April 20, 2016

Contributor: Susan Moore

Reducing infrastructure and operations run costs is IT's best option to free up funds for growth and business transformation.

IT leaders are faced with a difficult dilemma. On one hand enterprises are increasingly looking at their IT departments to help drive business growth and transformation; while on the other, IT budgets are not keeping pace with growth and transformative demands.

“By lowering the cost to ‘keep the lights on’ — otherwise known as ‘run’ costs – you can start freeing up funds,” says Michele Caminos, managing vice president at Gartner. “Since infrastructure and operations (I&O) comprises two-thirds of overall IT run costs, this is the most obvious area for reducing expenses.”

Many CIOs are being forced to consider cost reduction to secure funding for value-added initiatives such as digital business, but where do you start?

Scrutinize every asset

Gartner predicts that by the end of 2018, at least 75 percent of enterprises can reduce annual I&O run costs by 25 percent or more. Though few near-term opportunities for savings may be apparent, I&O provides plenty of longer-term room if you‘re willing to address cost optimization with careful scrutiny of every asset.

“The most important thing is to make sure you have a strategy in place,” says Caminos. “Then you can look at cost savings, starting with some areas that will give you some quick wins depending on your existing environment.”

Consider each of the four major technology domains that make up I&O: data centre, networking, client computing and service desk. Then evaluate the most impactful methods for reducing costs and prioritise your initiatives.

It’s important to understand the total cost of ownership (TCO) for each of these functional areas. There might be some low hanging fruit outside of infrastructure changes that you may not be aware of from a tools, skills and overall management perspective.

“This is better than simply ripping and replacing infrastructure, which is always difficult,” says Caminos.

Searching for potential cost savings

Three key principles drive most cost reduction opportunities and are extremely useful in searching for potential cost savings:

  1. Economies of scale: the cost per unit decreases as the number of units increase, such as the per-square-foot cost of a data center.
  2. Modernization: this is based on the idea that subsequent generations of a high-tech product offer cost/performance improvement over earlier versions.
  3. Staff productivity: The number of devices a staff member can handle increases with the number of personnel, number of units and time.

The Three Economic Principles of Cost Reduction

Download research: Reinvest in Growth With Smarter IT Spending

Once identified, consider the following dimensions to determine those to initiate and those to pursue in the future, if at all:

  • Cost savings benefit: What is the size of cost savings relative to the I&O budget?
  • Payback time: Does the estimated payback period fit enterprise goals and guidelines?
  • Customer impact: Will the project change internal and external behaviours and capabilities, and ultimately impact the customer experience?
  • Organization impact: How will the plan impact the enterprise organization in terms of staff, operations and structure?
  • Technical risk: Is risk at an acceptable level and can it be addressed with available skill sets?
  • Investment level: Can the expected upfront investment realistically be made?

The adage "spend money to save money" is relevant to I&O optimization. The lowest purchase price doesn’t necessarily lead to the lowest TCO or the best opportunity for cost reduction.    

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