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Over the last few years, business confidence has been shaken by a series of shocks and wider economic uncertainty, putting cost reduction back on the board agenda. As one of an enterprise’s most significant areas of expenditure, IT is ever in the spotlight. Using new IT levers, CIOs can help their enterprises reduce the costs of business operations, while increasing flexibility to modify costs and services in response to changing conditions.
Because most CIOs are already running lean IT organizations, it is more challenging than ever for companies to cut IT costs. Fortunately, an array of new tools and solutions has opened fresh cost-reduction opportunities.
Advances such as cloud computing and software-as-a-service (SaaS) offerings, powerful collaboration technologies, and increasing virtualization, standardization and industrialization have dramatically expanded the CIO’s scope not only to drive down costs in IT, but also to bring innovative cost reduction ideas to the business as a whole. In addition, corporate boards are eager to increase flexibility and agility in their operations and cost base, to equip their businesses to handle further shocks. In many enterprises, tensions have emerged between the cost and agility agendas, further complicating decision making.
The new solutions at CIOs’ disposal equip them to reduce costs across the business while also increasing the enterprise’s flexibility and resilience to shocks. This new level of opportunity applies throughout four waves of IT cost reduction:
Wave 1: Seize short-term cost-reduction opportunities and minimize spendingAlready undertaken by the majority of CIOs, the first wave involves exploiting immediate cost-reduction opportunities and minimizing ongoing IT expenditures.
Wave 2: Optimize IT for efficiencyThe second wave optimizes IT for efficiency—again a step that most CIOs have already taken and where new levers are creating new opportunities. The focus this time is on achieving greater control and alignment of IT with the business, and implementing a wide range of initiatives to enable IT to do more with less.
Wave 3: Re-architect IT for efficiencyThis wave involves enabling IT to prepare for the challenges the business will face tomorrow. In order to help their enterprises capitalize on new technologies such as mobility, cloud and personalization of devices and applications, IT organizations must rethink their operations strategy, adopt cost-effective management approaches, and conduct a strategic analysis of their systems landscape.
Wave 4: Drive IT-enabled business valueIn this wave, CIOs are positioned to help the enterprise reduce the costs of business operations and increase flexibility to modify costs and services in response to changing conditions.
By implementing the first three waves of cost reduction, CIOs have transformed their IT functions into lean and efficient operations, while keeping business benefits firmly in sight. These waves are iterative, ongoing processes through which organizations can continue to harness new levers and drive further cost reductions and efficiencies in IT.
It is in the fourth wave of IT cost reduction that organizations can drive home the full benefits of the first three waves. While the savings that IT can generate within its own operations are worth having, these savings are dwarfed by the much larger cost reductions that IT can help to realize across the rest of the enterprise.
It is increasingly urgent for organizations to realize these reductions, since, in today’s volatile and intensely competitive world, only low-cost organizations will survive.
Our experience indicates that organizations that have invested to cut IT costs have achieved a lower ongoing total cost of ownership than those that have taken a short-term approach and simply reduced spending. CIOs who harness new IT levers to launch the fourth wave of IT-enabled cost reduction, thus delivering tangible benefits across the enterprise, can both strengthen their own standing in the organization and reinforce the case for continued spending on IT.
Business-cost-reduction opportunities are out there in most organizations. The challenge in wave four is to identify and prioritize these opportunities through a governance process that balances IT cost containment with the business benefits achievable through IT investments.
June 8, 2012
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