Cutting IT Costs in The Digital Era is an Opportunity and a Threat
Technology and the management of technology have moved on since the ’90s and ’00s: Architecture, agile, digital transformation, IT services and operations, new and improved IT management tools, and emergent technologies. Overlaid on these developments is the attitude of business towards IT and its value in the organization. In the digital era, technology and the IT department has become central to organizational success and customer-led strategies.
It is the role that IT plays in an organization that probably has the most impact on the pressure to cut IT costs, and as much on the type of costs that the IT department can cut. Over the last ten years, many IT departments have enjoyed a role-change in their organization, becoming more central to business operations, and playing a strategic part in the development of new products and services. In this light, it is important to revisit IT cost-cutting, looking at the changed role of IT, newer technologies and IT methods, and more evolved approaches to IT management and operations.
There is a saying that it is easier to wield the red pen (cut costs) than a black pen (increase revenue). This may be true in small measures for CIOs, but in general, IT costs are already optimized, and any further cost-cutting threatens to affect quality, service levels, and risk profiles. Therefore, it makes much more sense to concentrate on IT optimization and to focus on business and revenue-generating opportunities provided by information technologies.
Ultimately, the value provided by IT, and the appreciation of this value, is in the hands of CIOs. Optimization and communication of both costs and benefits are essential, and benefits realization is foundational to improving understanding of IT activities, potential, and value.
The role played by IT dictates the cost/value equation in that it affects the pressure placed on the department to either cut costs or improve revenue. If the IT department is seen as a back-office function, CIOs can expect pressure to manifest itself as a “reduce costs of IT by X percent.” However, if IT is seen as central to business progress and success, and a value-adding unit, CIOs can expect cost-cutting pressures to be balanced against the work they do in improving product and customer services. This is where benefits realization plays an essential part in changing the pressures that CIOs face. If the CIO can “prove” the value provided by IT initiatives, he or she will be better placed to resist blanket cost-cutting demands, and rather focus on optimizing costs and driving business value. This is no small advantage to CIOs – it affects IT’s role and standing in the organization.
Cost-cutting strategies in the digital era are more finessed than the old “slash and burn” approaches of ten or twenty years ago. New strategies involve optimized architecting of the technologies, processes, capabilities, applications and even APIs of the organization. They also require revisiting new and long-standing contracts – more CIOs are moving towards partnership contracts over supplier contracts, as they not only cut costs, but they also move some costs onto partners.
DevOps is an efficiency and effectiveness cost-cutting strategy, both in the IT operational space and in the business. Finally, most CIOs have revisited their outsourcing strategies as the outsource providers change and consolidate. Outsource management companies have acquired the skills and experience to help customers manage their third party agreements, consolidating all outsource contracts under one roof. Outsource service providers are consolidating to provide wider ranges of services and expertise, while other outsource companies provide niche services, often outside the IT norm for outsourcing – R&D, trend analysis, procurement, and even IT strategy outsourcing. Also, cloud deployments are now outsourced. Cloud service managers provide cloud architecting, provisioning, consolidation, and metrics services.
Outsourcing is also easier, as providers take advantage of videoconferencing, internet telephony, and instant messaging. They are as close as your computer. Which is why offshoring is a continually growing trend. New entrants to the offshoring service providers are overtaking India as the prime source, with China predicted to overtake India, and the Philippines, Eastern Europe, Latin America and others in hot pursuit.
The digital world has changed, and a CIO’s cost-cutting strategies must change as well. But at the base of it all, is benefits realization. If you can’t demonstrate value, you can only expect cost-cutting demands to increase.