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:

1. 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.
2. 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.
3. 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.
4. 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.

Classically, an organization operating at, or just above, a level 1 is focused on “keeping the lights on” activities, as well as “putting out fires.” What’s broken rarely gets fixed because no one has the capacity to diagnose the problem (i.e. root cause) and then implement a change. Likewise, the demand for “getting it done” outweighs the need to do it right.

Here are some other indicators of an organization operating between a level 1 and 1.5 maturity level.

• Nothing is tracked well. One former client’s company paid millions of dollars in penalties due to an over-allocation of software licenses because no one in IT was keeping track of the number users during a period of high employee headcount growth.
• Documentation is sketchy. Another client’s organization had loads of initial process/software/configuration documentation but didn’t have the discipline, change control, and quality practices to maintain the knowledge as the environment evolved.
• IT manages noise. My favorite anecdote is about a senior director who held a one-hour operational review meeting EVERY morning with all her senior staff just to understand what happened over the last 23 hours in case her peers or boss called.

Organizations between a level 1 and 1.5 usually have a myriad of problems across multiple dimensions. Assessing these issues can seem overwhelming. In fact, it’s often the hardest thing for an IT organization at this level. But it’s at this point that the pain of managing “noise” is greater than the risk of moving towards the “P” word: PROCESS. Before doing this, however, it’s important to understand the current state: what abilities you have, how committed your management and business partners are to change, and how accountable your IT leaders are for their part in it all.

One way to approach the problem is to use a tool, like a balanced scorecard, to help you think in a simpler, more disciplined, and measurable fashion.

Each of the four standard components of a balanced scorecard have a cause and effect on the other components:

1. Learning and Growth: How much does IT need to invest in its people so they have the skills necessary to perform high quality activities and interactions? And fulfill the outcomes of the services they support?
2. Internal Business Processes: Are IT processes consistent, repeatable, and measureable? Are they delivering/achieving expected outcomes for customers?
3. Customers: What are external customers paying the business for? Where is the business headed? How can IT enable better decision-making? How aligned are IT’s strategic imperatives with the business’ strategic driver?
4. Financial: How can the company generate revenue from the services IT delivers?

So what’s the key to progressing towards a 2+ organization? It’s simplification, measurement, and consistent communications. I know it’s not sexy, but they’re probably not paying you for sexy. It’s not easy either, but the benefits, like freed up capacity and helping your business run more efficiently and effectively, are worth it.

How have you simplified?