When CIOs face cost optimization on IT companies they need to make a healthy balance between common IT spend, and investments in business innovation. The best strategies are those that pursue innovation while reducing unnecessary costs. According to Cognizant, Strategic IT Cost Optimization techniques are the right path to follow when CIOs want to prepare their organizations to grow. Always looking for the right balance between reducing IT spend on one hand, and increasing investments in innovation and IT improvement initiatives on the other.
Strategic IT cost optimization process
IT cost optimization cannot be a one-time initiative, They should rather be a continuous process and a guiding principle for managing IT most efficiently. Although organizations can achieve an effective cost savings program, business uncertainty will continue to impact IT organizations. To overcome these situations, a CIO requires a strategic IT cost optimization program to:
- Generate process efficiencies.
- Improve the quality of service.
- Build a stronger value chain.
- Improve skill management.
- Increase customer satisfaction.
Now we will focus on the benefits of a strategic cost optimization program. For this, we will follow a process to adapt IT cost optimization to organization goals. This process can help CIOs prioritize cost optimization initiatives by considering the potential cost savings and other benefits such as:
- Time requirements.
- Degree of organizational and technical risk.
- Impact on customers
- Investment required.
IT & Business Alignment
Although this article is directed mainly to IT Companies, the concept of IT & Business alignment is an important goal that is not always easy to achieve. The IT & Business alignment integrates IT to the strategy and goals of the organization. To achieve this alignment organizations need to meet some key characteristics:
- The organization must value its own IT resources as an instrument to enhance the business.
- Must hold customer service, both externally and internally, at the highest importance.
- It’s also important to rotate both IT and not IT business professionals across different departments and job functions.
- The organization has to provide clear and specific objectives to both the IT and not IT business sectors.
- The organization needs also to create an inclusive business culture to unify the company as a whole.
IT Investment Optimization is the base stone in which lays IT & Business alignment. The following are the most important key point to achieve IT Investment Optimization:
- Avoid declining IT budgets.
- Define new IT investment optimization goals
- Identify investment opportunities.
- Prioritize investment portfolio.
- Develops ongoing governance.
Opportunity Identification
To identify IT cost optimization opportunities, a company should make an IT cost assessment. This practice can help find solutions to the business challenges identified through the merger or acquisition. It can also help generate increased utilization of IT resources and assets.
Alternate sourcing
This can be an excellent practice when a company looks for a way to optimize IT costs. Every company needs to think about how many people it requires at its offices and how many it can have as outsourced. When thinking about the best outsourcing method, Offshoring can help to optimize cost by relocating activities into another country.
Nevertheless, Nearshoring might be the best option for IT companies that demand the best-qualified employees abroad, and that are linguistically and technically focused. Nearshoring allows IT companies to improve business efficiency but reduce the barriers of traditional offshoring because they outsource their processes to nearby countries.
Cutting costs by renegotiating
IT companies can also seek out ways to save money through renegotiation with their vendors. And it can be a very productive practice because many vendors are in the position to negotiate. But it may be not an easy task, so it’s better to follow some important steps to renegotiating with vendors:
- Consider the market data to support what is requested.
- Don’t forget that you are trying to rebuild a pre-existing relationship.
- Take care of its long-term viability as well as achieving a reduction in costs.
- Transmit to the vendor that your better financial health will probably translate into higher future orders.
- Exchange a more favorable rate for a longer contract term.
- Also, find out how you can help your vendor for saving money.
Standardization
According to Gartner, rationalizing and standardizing enterprise applications is one of the best techniques to help CIOs turn to strategic IT cost optimization. It can reduce the application portfolio that always represents a large part of an IT budget. CIOs who standardize and rationalize their application portfolios can reduce and control costs. Savings can range between 15% and 25% of the application budget.
To adopt a standardized infrastructure can help keep in control the cost and enhance working quality. But always take care of how you are investing your organization’s money. It is important to do it with cost optimization in mind, to be sure that you are spending your business capital in the right way.
Integrating, updating, and modernizing devices and applications were usually the core of every IT-specific cost-cutting in the past. But today new Cloud infrastructure solutions can help reduce complexities and simplify software administration.
Realization of Benefits
The Realization of Benefits process will let you identify and measure your company’s benefits, enabling your business projects to be implemented with a clear vision of the delivery of outputs. To obtain a proper IT cost optimization you need to apply Realization of Benefits in areas such as software, hosting, networks, end-user computing, and IT overhead management. The following practices can help you with this task:
Infrastructure Rationalization
Gartner recommends that it’s a better plan to first simplify your existing systems, before spending large amounts of money to replace all your existing systems. To achieve this you need to identify existing assets. It’s a good practice to make an inventory of all servers and hardware currently in use and maintain it monthly. Then, you need to identify assets from that inventory list to be rationalized and consolidated. You can get advantages of this knowledge and make Infrastructure rationalization with the following actions:
- Remove unnecessary assets.
- Define common processes and tools.
- Consolidate the number of physical locations where infrastructure is deployed.
- Adopt virtualization to better utilize infrastructure assets.
- Rationalize the variety of items in the infrastructure.
You are practicing consolidation when you reduce the number of physical servers, while you are practicing rationalization when you reduce the variety of different server types. Both practices can help you simplify your business IT infrastructure, but rationalization is often overlooked, even when most IT systems have underutilized or inappropriate systems. Consequently, consolidating without rationalizing will only perpetuate unnecessary functions in your infrastructure.
Global Sourcing
Your business can make use of practices such as Global Sourcing to obtain the highest levels of efficiency possible in goods and services from the global market. Many foreign suppliers offer their services at a competitive price, especially in low-cost regions. The main goal of this kind of practice is to improve service costs while maintaining the exacting quality standards required. But don’t forget that Nearshoring might be the best option for IT companies to obtain the best-qualified workers abroad.
Application Portfolio Rationalization
Another good practice in the search for Realization of Benefits is the Application Portfolio Rationalization according to Apptio. It is the process of cataloging and eliminating duplicate software applications used across an organization. This rationalization practice can help you to improve efficiency by simplifying portfolio complexity. It can also help you to lower the total cost of ownership (TCO) for your business application portfolio.
When your business application portfolio is aligned to business outcomes, it is when Application rationalization initiatives tend to be more successful. You need to identify a defensible and repeatable process to get the best benefit from your Application Portfolio Rationalization.
To execute the best plan of action, focus one by one on every activity to maximize success. You can create an application catalog, assign costs, create a point system to assign a score to each application. Last but not least, maintain this as a continuous process to sustain momentum.
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