How CIOs Can Optimize IT Costs

CIOs must establish a culture of proactive IT cost optimization to strengthen their position with their CEO and stakeholders.

“We need to reduce the IT budget” is a sentence that CIOs despise, but hear too often. When they try to defend the cost in front of the CEO and other non-IT executives, all they see is blank expressions, followed by the request to “just make it happen” and ensure that all services are nevertheless running smoothly.

CIOs must showcase that they have evidence of a proactive strategy of continued cost optimization

Many business leaders still view IT as an opaque silo of function and spending. “It is the role of the CIO to show to stakeholders how certain cuts will impact services and where savings are possible,” said Gartner Senior Director Analyst James Anderson at Gartner Symposium/ITxpo in Dubai. “This proactive attitude from the CIO will provide evidence that IT is able to manage budget efficiently, and stop the repeating requests by stakeholders to deliver more with less.”

To effectively communicate their IT cost optimization vision and strategy to non-IT decision makers, CIOs must showcase that they have evidence of a proactive strategy of continued cost optimization. This can be done in several steps and should be adapted accordingly with business and stakeholder priorities.

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Step No. 1: Establish a baseline

Establish a baseline for the IT organization. It is difficult to demonstrate progress without a fixed starting point. Work with the CFO and CEO and decide where IT needs to effectively allocate resources to initiatives that will show the best value for the organization. Without data, there are only opinions to base a strategic advantage or disadvantage of IT investment.

Step No. 2: Identify opportunities

Split the organization’s IT spending and costs to a granular level and compare the data points to companies within the vertical industry for valuable insights. Operational expenses much higher than the industry average means that there could be room for cost optimization. On the other hand, comparatively low spending for functions such as the IT service desk mean that cuts in this area might impact service quality.

Step No. 3: Establish governance

In general, CIOs have likely been engaged in several cost optimization initiative discussions. The most important task is to manage all ideas proactively via a cost optimization government team and evaluate the potential.

Some ideas might result in modest savings, because they only reduce IT costs, while others will impact business spending and revenue. “When IT introduces a new payment model that is easier to maintain and improves customer experience at the same time, it is not only cost-effective, but also enables possible new business models,” Anderson says.

Step No. 4: Start with quick wins

Team up with a trusted business-unit leader, communicate expectations for what is to be accomplished and explain how IT can support the goals of the business unit. The best way to ensure organizational buy-in for a proactive cost optimization strategy is to showcase a portfolio of quick wins — projects or changes that achieve immediate cash savings without costing anything or are entirely cash-positive without requiring much spending.

After completing a few of the projects, present the portfolio to the CEO and other stakeholders.

“The portfolio is very important. It clearly showcases the vision and strategy of the CIO regarding cost reduction and its results within the business,” Anderson says. “It moves the CIO and IT from speculating what the savings could be to demonstrating a foundation of real savings. In the end this vision matters to many stakeholders, including the CEO and the CFO.”

Gartner clients can read more in “Three-Year Roadmap for IT Cost Optimization” by James Anderson and Cesar Lozada.

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