BlogDriving Business Strategy with IT Cost Optimization

Driving Business Strategy with IT Cost Optimization

May 10, 2018, Expense Management

By Larry Foster

The digital revolution is now the common strategic challenge for every IT organization across the globe. IT managers are continually tasked with ways to cut costs while simultaneously being assigned more technology services to support. The accelerating adoption of AWS, Azure, and an ever-growing spectrum of on-demand cloud services is forcing IT managers into an unprecedented paradigm shift, one that requires a completely new management approach.

In response to this rapid pace of change, cost-cutting is often simply trying to reverse the influx of budget line items that have already occurred. But many organizations have found this reactive response isn’t effective, as short-term savings can mean long-term costs in a continuously-changing technology environment. Traditionally, CIOs and IT CFOs have approached fiscal challenges tactically by surgically removing expenses, but they often do so without truly understanding the potential consequences their reactions will have to running and growing their businesses.

Gartner defines cost optimization as “a business-focused, continuous discipline to drive spending and cost reduction while maximizing business value.” As opposed to cost-cutting, optimization is never “complete,” but rather, is a set of practices that must be implemented on an ongoing basis.

IT managers that utilize IT cost optimization align their execution strategy to their organization’s Critical Success Factors (CSFs). They transform from an ongoing series of one-time disruptive reactions to an agile-based methodology that quickly resolves budgetary constraints with operating requirements and growth aspirations.

This requires IT managers to champion a transformation from a reactive role of chaotic spreadsheets and technology support to a proactive role driving enterprise transformation. The immortal words of Peter Drucker outlined the fundamental initiative IT organizations must take to get started: “If you’re not measuring your digital initiatives, how can you manage or optimize them? Now just because you measure something doesn’t guarantee that you will actually manage it, however, measurement is the starting point.”

In the recent Gartner white paper “IT Cost Optimization Principles,” analysts Ken McGee and Jim McGittigan have outlined a set of six principles, which I’ve summarized here:

1. IT Service Support and Service Delivery need to align around a common philosophy that places the stakeholder first. In doing so, everyone who delivers technology should serve as a fiduciary.

2. Optimizing costs requires effective financial transparency across all aspects of the IT management lifecycle.

3. IT Financial Management must be equal in importance to all other IT responsibilities.

4. IT Cost-Cutting is NOT IT Cost Optimization (“one-time” versus “continual accumulative improvements”).

5. IT organizations need to help cost center managers determine the right level of technology investments, by providing them insight and effective consultation to help them understand all factors that affect costs.

6. IT organizations that are aligned to stakeholders realize that IT does not conduct projects in a vacuum. Instead, IT organizations operate as authorized practitioners that work on behalf of business objectives.

In our new blog series on IT cost optimization, I will examine each of these principles and provide additional clarification to what IT organizations need to maximize their technology investments and become key drivers of business strategy. Dive deeper with part 2: Being an IT Fiduciary and the Future of IT Management.

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