Groucho Marx once joked “Those are my principles, and if you don’t like them…well, I have others.” This is great for getting a laugh, but decision making without guiding principles is like a ship’s captain navigating the wind and current without a compass.
The same can be said about an IT organization’s approach to cost optimization. After years of one-off tactical cost cutting, many businesses are facing the challenge of ongoing and continuous cost optimization. For many, this is no longer the exception but the new reality.
The usual approach to cutting costs is the purely tactical. Problem is, when the clear cost culprits have been identified and reduced or eliminated, future optimization initiatives can become more arbitrary and problematic. Even the low-hanging fruit that appears to be an obvious candidate for reduction to some may not be to others—like your business clients.
In a recent Gartner survey, CIO’s were asked, “What are the main barriers preventing organizations from achieving continuous optimization of IT costs?” Sixty-five percent of the respondents indicated that it was a matter of mindset—that is, creating the environment necessary for all resources to work together, move in the same direction, and agree on the same strategy.
We agree. TransAccel believes there’s a better approach to determining cost optimization decisions—one based on four “Guiding-Principles.” The benefits of using this method include a more consistent alignment with the company’s strategic drivers, a consensus among business leaders, a long-term framework for ongoing cost optimization initiatives, and a correct way to maintain what is most important to the organization.
The Four Principles are:
- Transparency – IT and business leaders need to explicitly agree on what IT provides the business, and what the business needs from IT. Often, basic cost optimization practices lack quantitative data to define consumption, drivers, and inhibitors for IT and business services. Transparency provides different viewpoints of IT spending, allowing for better consensus and agreement regarding opportunities for optimization and prioritization.
- Flexibility – Maintaining a prudent balance between both internal and external resources allows an organization to remove or add resources as the business climate changes. Sourcing IT on a variable basis is a good strategy for continual optimization.
- Simplification – Running IT systems on standardized platforms leads to consistent business processes and well-defined IT services, which reduce costs. In highly complex environments, IT unit costs can be as much as 25% higher.
- Discipline – In order to maintain constant focus and vigilance on cost optimization initiatives, an accountable and proactive owner should be delegated (normally the CIO), who will utilize dashboards and metrics to measure success rather than wait for cost targets to be handed down from top management. Additionally, establishing an optimization team that includes leaders from outside IT to help weigh business outcomes and constraints is another option worth considering.
In later blogs, we will explore some of these important principles in more detail. However, the four above are critical if a continuous and effective cost optimization environment is going to exist.
The goal is to manage IT as a business, and to leave all the laughs to Groucho Marx.
