Beyond the 4%: How IT Can Cut Costs for the Entire Business

    June 13, 2016

    By Bill Andruss

    Businesses won’t find much to cut from already-lean IT budgets. Instead, IT professionals should look beyond IT, launching digital initiatives to cut business costs and create new value.

    IT professionals are always seeking ways to limit costs, but given that their department represents an average of only 4% of total business costs, these ambitions can feel somewhat limited from the outset. In a hypercompetitive digital environment, however, the performance of IT is directly connected to the success of the business as a whole — the department must not only cut costs, but also ready the business for continual digital disruption.

    As Gartner argues in a recent article, this means that IT professionals have to expand their horizons beyond the IT department, crafting forward-looking digital cost optimization strategies for the entire business. With proactive digital initiatives in place, companies put themselves in a strong position to absorb financial setbacks and respond to challenging market conditions.

    Finding Substance in a Lean Age

    As Gartner observes, many organizations are quite familiar with IT department cost-cutting; the economic recession of 2008 forced it upon them. But with operations that have already been lean for years, it has become that much more difficult to shed pounds today: while the year-over-year change in IT budgets in the five years leading up to 2008 was 2%, it was just 0.004% in years prior to 2016.

    Even if IT were to somehow shed the entirety of its core costs, the effect on the overall budget would be minimal. With low expectations for the coming economy, organizations need more room to breathe, as Fortune emphasizes.

    In this light, it’s clear that digital cost optimization is not only critical, but that its scope must extend to the entire business. In other words, IT professionals need do more than just trim costs; they need to identify specific inefficiencies within business processes themselves, so that proactive digital initiatives can be launched to resolve them.

    Organizations may need to endure some upfront costs in order to recoup long-term value (and be hesitant about cutting value-adding programs), a strategy that may come into conflict with intuition in a moment of crisis.

    How Does Optimization Take Form?

    Gartner argues that, all in all, digital cost optimization should be comprehensive, enhancing the value of IT on three distinct fronts: 

    1. Reducing IT costs while increasing its value to the business
    2. Digitizing and optimizing business processes
    3. Preparing for a digital future by digitizing assets, processes, and data

    Writing in Forbes, Gartner analyst Barbara Gomolski uses the efforts of a global insurance company to illustrate this kind of optimization in action. In line with these three areas, this particular company: 

    1. Modernized an outdated legacy reporting system
    2. Automated the core processes relating to that system
    3. Invested in mobile apps to improve the customer experience and enhance productivity

    Undertaken before companies are required to trim budgets, such strategies place companies in a strong position to remain competitive, regardless of circumstance. But how should companies decide what and where digital initiatives are needed most?

    Approaching Digital Cost Optimization

    To successfully launch digital cost optimization strategies, IT professionals must be able to decipher the value that specific IT processes provide to the business, then pitch more valuable alternatives to business leaders. More than that, they have to coach decision-makers through the entirety of the digital rollout process.

    For IT leaders to make a meaningful contribution to discussions about how to best pursue such optimization strategies, they need to simplify their IT metrics and be able to reliably model new configuration scenarios, to help leadership make informed decisions. IT leaders need to be able to point to specific services and say, “That’s healthy, let’s leave it be,” or, “That’s putting us at risk. We need to simplify this service and add elastic resources,” for example.

    While IT budgets may only represent an average 4% of the company total, their processes increasingly underpin the entire organization. With IT being a core driver of business, cost-cutting no longer means squeezing the IT budget, but rather, carefully evaluating how digital initiatives can both improve an organization’s operational efficiency and create a competitive advantage. Put another way, the lines between IT and the business are only continuing to blur.

    (Image credit: unsplash/Pexels)

    Category: it-budgeting