Sustainable IT Cost Reduction

Current economic uncertainty has major implications for companies' efforts to achieve and sustain high performance. Chief information officers (CIOs) face the challenge of reducing IT costs while maintaining service and supporting the business-efficiency agenda. Accenture's experience has shown that a significant and sustainable reduction in costs—as much as 25 to 40 percent—can be achieved while improving organizational performance. The Accenture cost reduction approach aims to deliver sustainable savings in tandem with greater business agility.

Listen to the Podcast: Cutting IT Costs While Achieving High Performance

Cutting IT Costs While Achieving High Performance
Listen to Accenture’s Michael Nieves explain how cost-cutting in the IT department can help companies weather the current economic storm—and position for clearer skies in the future.

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The economic climate has inevitably put cost reduction back on the senior management agenda, resulting in pressure on the CIO to reduce IT costs, while maintaining service and making IT investments that will improve business efficiency.

For many organizations, previous optimization efforts have already removed a significant amount of IT costs, making it increasingly difficult to find additional cost savings. As a result, in many instances further significant savings will need to be delivered from a long-term strategic perspective while still achieving visible, measurable and sustainable savings in the near term.

At issue here is the link between discretionary and non-discretionary IT spending. Investments made with discretionary spending in one year often become operational expenses in the non-discretionary budget thereafter. These discretionary efforts are primarily aimed at increasing either business or IT efficiencies and boosting revenues.

In fact, these efforts are often how IT delivers value to the business and supports its drive to achieve high performance. Thus, reacting to recession by simply cutting discretionary spending actually has the unintended result of increasing operational costs and creating a growing capability gap between what the business requires and what IT can deliver.

CIOs in today’s unstable economic climate need a tested cost reduction methodology that can help IT cut costs while also improving service to the business. In order to achieve this win-win outcome, CIOs should consider taking a more strategic view of—and approach to—the trade-off between discretionary and non-discretionary spending.

One research-tested approach is to retarget IT discretionary spending, thereby redirecting and reinvesting some of the ongoing operational non-discretionary spending to deliver greater business value. The goal is to increase IT discretionary spending progressively within a declining overall IT budget.

This approach can enable ongoing reductions in operational spending while maintaining the capability gap at a consistent level throughout the downturn, and provide a platform from which to close the gap once growth conditions return. Accenture High Performance IT research findings consistently support this strategic approach. The findings reveal that leaders in IT execution generally hold the course on IT investments through difficult financial times.

A series of steps can be applied to support the cost reduction program. Making the right investment decisions in these key areas is an iterative process consisting of three steps:

• Minimize: Identify areas of clear and immediate cost reduction opportunities. This provides increased room to maneuver while boosting the confidence of stakeholders in the prospect of near-term cost relief.
  
  
• Optimize: Work to run current operations more efficiently by improving the use of software and hardware assets, thereby divesting non-essential assets and decreasing the average IT unit costs.
  
  
• Redesign: Embed structural changes by shifting the focus to lower-cost delivery models. This drives significant improvements in labor costs, extracting savings through better operating models, leaner processes, transformational technologies and sourcing strategies.

Accenture can guide CIOs to make sound investment decisions, reducing non-discretionary IT-focused operational costs and reinvesting the resulting savings in initiatives to drive future business growth by examining four areas when making investment decisions:

• Challenging the business: Ensuring investments achieve quantifiable business benefits.
  
  
• Holding on to good things: Finding technology investments that reduce “lights-on” spend and reinvesting the resulting savings.
  
  
• Refining historical choices: Conducting an IT budget review, identifying critical services and halting those that do not contribute to operating efficiencies.
  
  
• Identifying hidden costs: Consolidating disparate IT assets and infrastructure and reinvesting the resulting savings.

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