Where once IT cost management was a competitive advantage, it is now table-stakes. If IT leaders are not operationally effective at managing costs, they risk falling behind in their ability to support business strategy and drive digital transformation.
As an IT leader, one of the most important responsibilities is to manage costs and maximize the efficiency of your organization’s IT operations. Cost-saving measures not only benefit your organization’s bottom line but also pave the way for investment in innovative technology solutions that drive growth. This blog discusses five cost-saving measures that IT leaders should prioritize.
Focus on Cloud Center of Excellence
In a recent IDC poll[1] of CIOs, 64% of respondents said they were spending more on the Cloud than they budgeted. Over 50% of CEOs are concerned about Cloud Spend[2].
A Cloud Center of Excellence (CCoE) are IT professionals assigned to develop and implement cloud computing strategies, policies and best practices. A CCoE centralizes cloud-related practices and standards as well as promotes consistency in cloud technology adoption.
Six elements are key to a successful CCoE:
- Leadership: Empowered leadership with the ability to work across traditional organizational boundaries or divisions. A CCoE is the opposite of siloed.
- Talent: Technical expertise to understand and support cloud initiatives across the organization, including cloud architecture, enterprise architecture, security, compliance, DevOps, and infrastructure. In most organizations, this requires a combination of hiring or reskilling of existing staff.
- Governance and Communication: Policies, practices, operating models, defined technologies, shared best practices (across divisions and business units,) and standards with an overarching architectural standard.
- Continuous Improvement: Continuously monitor and assess cloud adoption and usage, identify areas for improvement and implement changes to optimize the benefits of cloud computing.
- Reporting and Metrics: Establish and track key performance metrics for Cloud usage based on the business drivers underpinning the Cloud strategy.
- Collaboration: Work closely with business units and IT teams to ensure cloud initiatives align with organizational goals and are integrated with existing systems and processes.
Implement FinOps
FinOps, or Financial Operations, is a practice that aligns IT spending with business objectives. By implementing FinOps, IT leaders and the business can gain greater visibility into Cloud value. FinOps teams address how the agility of Cloud can complicate budgets and forecasting. They also link spend to business value so business leaders can make considered decisions on their Cloud usage.
The three phases of the FinOps life cycle provide a structure for effective implementation:
Inform
- Tagging (descriptive metadata)
- Visibility into spending
- Budgeting and forecasting
- Cost allocation
- Assembling a cross-disciplinary team
Optimize
- ROI
- Rightsizing
- Workload placement
- Rate and discount optimization
- Culture and ownership
- Minimizing waste and unused resources
- Identifying tools and software
Operate
- Automation
- Centralized billing or showbacks
- Defined control and governance
- Communicating optimizations and spend-patterns to “Inform” phase and stakeholders
IT leaders can start a FinOps team of one, but complexity typically expands it to additional roles:
- FinOps Practitioner Lead
- Cloud Engineering and Operations
- DevOps Manager
- Procurement
- Finance
- LOB Product Managers
- Executive Sponsor
CCoE and FinOps overlap in some duties but, simplistically, the former is focused on setting standards while the latter is responsible for ensuring value (cost versus business benefit).
Based on our consulting engagements with clients, when tech leaders build a robust CCoE and FinOps organization, they typically see 10-30% reductions in cost and slower cost growth than more ad hoc Cloud management practices.
Benchmarking IT Costs
IT cost benchmarking involves comparing your organization’s IT spending to relevant peers both inside and outside your industry. This approach ensures that you are not only comparing yourself to your industry peers but also to relevant performers in other industries. Benchmarking allows IT leaders to identify outliers in IT spending and optimize budgets accordingly. IT cost benchmarking also helps to ensure that your organization is receiving value for money from vendors and service providers. Finally, it can support budgetary requests or validate investments to the business.
Cost benchmarking is a valuable tool for technology leaders to identify cost efficiency opportunities in their organization. In our experience, companies that regularly employ cost benchmarking typically find 5-10% efficiency opportunities. However, companies that have never performed cost benchmarking can see up to 30% opportunities for cost efficiency.
It’s important to note that cost benchmarking goes beyond just KPIs. While KPIs provide metrics for the average organization, they don’t account for the different goals, strategies and technologies in each organization. Benchmarking allows technology leaders to gain insights into their organization versus similar technology, workload, volume, complexity, and service peers.
Most organizations do not have the data to perform cost benchmarking themselves but use third-party advisory firms with a broad database of comparable peer data. As part of this, technology leaders need to inquire whether the data is regionally specific to their environment. Also, look for impartial assessors who don’t have down-stream interests in the results.
With cost benchmarking, technology leaders can identify areas where their organization is overspending and implement cost-saving measures. This can lead to significant savings that can be reinvested in other areas of the organization.
Conduct an IT Workforce Assessment
In a global Future of Work survey[4] conducted last year, a large majority of the respondents stated that enabling employees to focus on higher value tasks, moving employees among roles and functions, and reskilling and retraining were critical. Further, companies are having challenges hiring staff, with an average of 3.2 additional months[5] in recruiting, which impacts project delivery.
IT staffing assessments help IT leaders identify opportunities to optimize and improve the use of resources and optimize staffing costs and align IT to business needs. By assessing the duties within IT roles (and not the person in role), and appropriateness of IT roles and structures, IT leaders can identify gaps and opportunities for training and upskilling, and organizational evolution. Workforce assessments help better align the IT organization to evolving technology and business strategy. IT workforce assessments can also identify opportunities to outsource or automate certain tasks, drive better service for the business and reduce inefficiency.
Typical benefits in performing an IT workforce assessment are:
- Identifies roles and structure for the present and the future needs
- Cost management and cost efficiency
- Forecasting and transparency
- Competitive resourcing
- Investing to innovate
- Determining whether IT is properly resourced, roles are consistent and are aligned with industry standard IT role structures
Address Technical Debt
Technical debt refers to the painful side effects of prioritizing time, money and workarounds over quality in the delivery of enterprise information technology[6]. As technology advances, legacy systems can become increasingly expensive to maintain and limit the ability of organizations to innovate. By addressing technical debt, IT leaders can reduce ongoing maintenance costs and free up resources for investment in innovative technology solutions.
Key impacts of technical debt include:
- Security vulnerabilities
- Manual execution of business processes
- Errors
- Inefficiency
- Reliance on institutional knowledge
- Drag on business profitability and growth, customer and employee engagement and retention
Technology leaders must first inventory their technology environment to identify technology debt and legacy technologies. This may be done using typical in-house technology tools present in most organizations: asset management, assets inventory, and asset discovery, source code analysis, or even speaking with your staff. There are also third-party tools and advisory groups that can assist in this process.
After inventorying your technical debt, triage the applications into key buckets for redress: retire, refactor, duplicate functionality, replace, rebuild, retain. Then determine the priority. Typical priority factors are cost, criticality, business risk, security risk, business benefit, supportability, and technology fit/strategic fit. Combining the buckets with the priority factors provides you a ranking system for targeting technology debt.
In conclusion, IT leaders should prioritize cost-saving measures to maximize the efficiency of their organizations’ IT operations so they can focus on being a business enabler and innovation-driver, rather than a cost center. By focusing on a Cloud Center of Excellence, implementing FinOps, benchmarking IT costs, conducting a staffing assessment, and addressing technical debt, IT leaders can identify and implement cost-saving opportunities that enable investment in innovative technology solutions.
Many IT leaders are challenged in demonstrating value to the business and validating their budgets. Learn how IDC Metri improves technology costs and performance delivery through our IT Service Cost Management service.
[1] IDC CIO Quick Poll, n=69 (December 2022)
[2] IDC Worldwide – CEO Survey, IDC, January 2022)
[3] IDC CIO Quick Poll, n=69 (December 2022)
[4] Future Enterprise Resiliency & Spending Survey – Wave 6, IDC, July 2022, n = 816, NA: 256, AP: 369, Europe: 191
[5] Future Enterprise Resiliency & Spending Survey – Wave 6, IDC, July 2022, n = 816, NA: 256, AP: 369, Europe: 191
[6] IDC Perspective, CIO Guidance: Preventing and Remediating Technical Debt, IDC, June 2022
