IT cost optimization in most organizations is now largely focused on business optimization rather than cost cutting, according to a recent survey by Gartner. Survey respondents revealed that their top criterion for selecting cost optimization priorities is business value or benefits realization, rather than the biggest or fastest cost reductions.
“The survey findings highlight how cost optimization has become a business-focused, continuous discipline that drives spending and cost reduction, while maximizing business value,” said Stewart Buchanan, research vice president at Gartner. “It’s not enough to simply reduce IT spending; CIOs must reinvest in growth and transformation to deliver more value. Those who fail to engage in optimization risk having savings decisions imposed on them by an advisory organization with less understanding of IT or digital technology opportunities.”
The survey revealed that larger and more successful organizations plan to give the business greater budgetary control over the savings it achieves. This way, business controls how it spends these savings on digital solutions development. “Giving money back to business leaders to reinvest in IT demonstrates faith in the maturity of business decision making and in the strength of IT’s business relationships,” added Mr. Buchanan.
Leading organizations are better at doing the hardest things
The largest and most successful organizations look beyond the quickest or biggest savings ideas to prioritize business value. “They’re not just looking for easy wins, and are not put off by the complexity of an initiative,” said Mr. Buchanan.
The survey found that the biggest gap between successful leaders and underperformers is in the three most difficult areas: limiting business demand, negotiating with the business and rationalizing application portfolios.
“Limiting overspending must be done carefully, with bravery and diplomacy. The same is true of negotiating with the business about moving to low-cost suppliers,” Mr. Buchanan added. “No matter how successfully IT organizations negotiate with their suppliers, they must also negotiate with the business to manage demand and balance corporate economics.”
CIOs are taking more control of digital business cost optimization
The survey looked at how IT organizations’ control over spending on IT and digital technologies has changed in recent years. It found that there are two-and-a-half times as many IT organizations gaining financial control than losing it. This bolsters Gartner’s opinion that the most successful organizations are more likely to trust their IT organization to manage their IT and digital technology spending.
Respondents were also questioned about who manages the selection and approval of cost optimization ideas. Those with visibility of both the IT shared services budget and all digital spending across the organization reported that, on average, nearly half of their digital technology spending is paid for by the business. A quarter is paid for out of the IT budget, with chargeback to the business.
“As you’d expect, CIOs have the most influence over the selection and approval of cost optimization opportunities within IT shared services,” said Mr. Buchanan. “Interestingly, CIOs who focus on digital business opportunities have greater responsibility for cost optimization than those who don’t. This suggests that CIOs are starting to exert influence over selecting and approving digital business ideas to optimize business costs.”