How To Reduce IT Costs The Smart Way.
In the post-COVID-19 crisis, most CIOs need to reduce IT costs while helping position their business for recovery and future growth.
At G2, as experts in helping CIOs and CEOs in this task, there are a series of actions that we recommend taking:
Phase 1. Address Cost Reduction Considering Measures In All Areas And Levels
Although almost all CIOs are obligated to reduce IT costs in the post-COVID-19 recession, they do not always do so with a global vision of all possible savings and clear prioritization criteria.
When developing the complete framework of cost reduction measures and the plan to carry them out, it is good to consider these steps:
- Analyze the IT department’s current IT costs and the “parallel” IT in the hands of the business units: services, projects, infrastructures, contracts with third parties… and classify them according to their volume and whether they are fixed or variable with business demand.
- Analyze the savings potential by defining a viable minimum of IT services and capabilities, considering the reduction of needs, the elimination of “whims” and “waste”: unnecessary reporting, “fashion” technology that does not add real value, etc. Here, Lean is useful for determining the necessary and unnecessary Value and Non-Value activities and services.
- Categorize the saving measures according to how easy they are to carry out, the savings they provide, whether they are reversible when the situation improves, the impact on the company (on its operations but also its image and the climate of the employees) and define an execution plan.
- Model the execution of the measures according to the different business scenarios defined by the management: from the need to survive in the very short term, to create a savings cushion for the near future, to adapt to a long recession or to reinvent the business.
- Define, as if it were a program, the implementation projects for each saving measure (necessary resources, time, knowledge, risks…) and execute. These projects must be closely followed and adapted from time to time as the situation develops for the company.
Phase 2. Attack Variable Costs
Most IT budgets have a variable and flexible part that can be adapted according to economic cycles and business demands. In a crisis like the current one, we can influence these variable IT costs, taking advantage of them and expanding them concerning fixed costs. These cuts must be made following business direction so that they are in line with demand and do not negatively impact IT capacity. And also following contractual commitments (with internal staff, with suppliers) and at the right time.
It’s important to re-prioritize and streamline the project portfolio, review application maintenance contracts, safely slow down infrastructure upgrades, lower service levels where possible, remove low-use or low-value systems, etc.
Those CIOs who have opted for infrastructure contracts or applications as a service (IaaS, PaaS, SaaS) that normally allow reviewing consumption baselines are better positioned here.
Now, all these measures must be taken with care because they can help the organization’s survival in the short term but compromise its viability or growth in the new normal. In addition, there is no need to “go over the brakes” because we can deepen the economic crisis of the company, affect employees, lose knowledge and critical skills or even put the continuity of the IT area at risk in the future.
Phase 3. Invest In Business Productivity And Prepare For The New Normal
In the previous crisis at the end of the first decade of the millennium, part of the IT savings was used to adapt the operation of the business and improve its performance. It was shown that the CIO could directly help increase business responsiveness and growth. To do this, you need to rationalize costs and maintain IT savings while investing in initiatives that reduce business operations costs and help generate revenue: process automation, new and better revenue generation channels, the productivity of the staff…
In general, it is good to prioritize:
- Develop applications and systems to shift the access and management of customers and suppliers to online channels.
- Transform the architecture to be more flexible and reduce fixed costs (cloud services, open-source solutions, cheaper management tools ).
- Automate business processes using new technologies ( Process Mining, artificial intelligence, RPA…)
- Technologies and methodologies that facilitate and improve collaborative teleworking. Remote work will remain after the lack of confidence. It will be part of the new normality, so it is necessary to adopt technologies (communications infrastructure, security and management tools) and invest in training ( Lean, Agile, DevOps methods ) that make it possible, productive, safe and collaborative.
Those of you who read this article and have IT management positions, what have you already done and what do you plan to do in this line? What difficulties do you find, and what response from the business management have you had?