"Save up to 20%—without painful service cuts. An effective cost saving initiative must address risks while seizing opportunities."
Driving down IT costs
- Today’s companies need to make sustainable cost savings across their entire IT infrastructure, but most show few signs of a systematic approach to these kind of initiatives. The reasons lie in the high complexity of IT infrastructure itself and the fact that users are rarely willing to accept cutbacks in service and performance. Moreover, the dependency on external partners (stakeholders) and on other departments across the company often present major obstacles when it comes to implementing sensible cost reductions.
An effective cost saving initiative must address these risks while seizing existing opportunities. Depending on the company’s technological and organizational maturity, there is scope for reductions in the cost base of up to 20% without serious cutbacks in service.
Above all, we are looking at actions that have a high return on investment (ROI) and involve a major one-time outlay on, for example, server virtualization, storage hardware upgrades, or support tool harmonization. In principle, ambitious savings targets can often be achieved in IT infrastructure without significantly reducing staff numbers. This is because up to 50% of the cost base usually consists of pure technology costs. Any savings in HR can be invested in growth and improving the management and monitoring systems (governance).
What specific actions can cut costs in IT infrastructure? By regarding the IT infrastructure as a service, we can identify two main lines of attack: internal optimization of service costs, and optimization of service requests at the demand interface.
Internal optimization of service costs
A framework for developing cost-reduction levers is often provided by focusing on technological domains such as storage, network and datacenter, desktop, and servers, databases, and middleware. It is not only technological factors like area control that play a critical role in reducing costs, however. This means companies need to look at the entire IT costs base from two perspectives:
Can hard or software be switched off or replaced by more cost-efficient options? Can utilization of existing infrastructure be increased? Can service contracts be optimized? Can electricity costs be saved?
Can manual or semi-manual processes be automated? Can process redundancies be eliminated and execution frequencies reduced? Can technological harmonization reduce process costs?
Further scope for driving down IT costs is found in improvements to the organizational structure. It may, for instance, be possible to make considerable savings by insourcing selected IT service providers.
Optimizing service requests at the demand interface
In many projects, cost-cutting levers at the demand interface present a greater challenge. Companies should distinguish between immediate actions and medium-term initiatives to improve demand control:
Can unneeded hardware be identified and switched off? Can unneeded storage capacities be given back? Can non-critical applications be migrated to more cost-effective or virtual platforms?
Can a demand-based classification of applications lead to a more cost-efficient contracting of server capacities? Can strict virtualization policies be agreed on? Can storage growth be controlled by rigorous data governance? Can improved cost transparency and fair cost charge-outs reduce unnecessary consumption?
Taking the right steps
To ensure that the individual efforts to cut costs are successful, companies should consider the following steps:
- Introduce a methodology for the entire lifecycle of the cost-reduction levers
- Ensure systematic and active stakeholder management
- Get management approval in good time for the cost-cutting levers and make implementation of the actions binding
- Take full account of the high level of complexity of the technological levers
- Introduce a proper implementation controlling system—simple monitoring of agreed actions is not sufficient
A rigorous methodology for the full lifecycle of the cost-reduction levers is key to a successful outcome. First of all, companies should identify the individual levers and quantify in detail the savings potential and implementation costs. It is then possible to design the implementation plan.
Prerequisites for project success
The most important condition for success is that everyone gets on board. Infrastructure unit management, global steering bodies, central functions such as IT Security, HR and purchasing, and above all the company’s business units and CIO organizations must be integrated at an early stage. After all, they all make a contribution—from identifying often complex and time-consuming actions, to approving these measures and implementing them.
When drawing up the business case for IT transformation projects, companies must consider their hardware and software. They have to decide whether to wait and change technology only after the hardware has been completely written down, or make an early switch with a one-time unscheduled write-down.
Once the cost-optimization process has been set in motion, implementation of all actions must be subject to permanent monitoring. This is the only way for a company to ensure that the predicted savings effects are realized in full, and on time.
And finally, a cost-cutting project requires a suitable team. Companies must put together a project team that can secure the necessary approval and support at all hierarchical and business levels within often short timeframes.
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