Thoughts on IT Cost Cutting

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Thoughts on IT Cost Cutting

During a recent business re-org, one of our long-time insurance clients took the opportunity to strengthen their enterprise IT function by centralizing it.  One of their first orders of business is to review the IT estate for opportunities to simplify.  Before I get into Diamond’s answer to this, I thought it would be interesting to see what others would do.  So, I asked the Twitter #CIO crowd for their top 3 ideas for IT cost cutting.  In addition to the tongue-in-cheek “Fire the CIO and CTO” answer, there were several good ideas offered.  Thanks to @mcgoverntheory, @dougnewdick, @sethgrimes, @jtbauer, @elliotross, @vpsingh, @smith_marty and @chrisonea for their thoughts.

How To Cut IT Costs – CIO Twitter Community Perspective

  1. Eliminate buildings and promote telecommuting
  2. HW/SW maintenance and 3rd party licenses, telecom, virtualization and open source
  3. Not use process as substitute for competence
  4. Spend less on consulting
  5. Rigorously scrutinize business cases before and check the actual benefits after IT projects
  6. I had an IT boss who said he’d fire half his staff if he could. IT advisor replied (privately), Yes, the wrong half.
  7. Review all maintenance contracts, cut wasted spend
  8. We are looking at less space & more virtual teaming
  9. Would get virtual machines, and a tool to manage VM’s

To summarize these proposals, they center on spending less on physical assets, making better use of staff and more fully leveraging tools to work smarter.

Diamond’s IT Cost Optimization Framework

Most CIOs I talk with think they can improve process consistency, reduce or eliminate lower priority initiatives and get higher levels of  productivity while reducing costs through simplification.  This is a big goal, but one I have seen some do successfully as long as they do the right things in setting up, building accountability for a staffing the resulting roadmaps.

We think that there are four basic techniques leaders have to lower overall IT cost – we have seen some real improvements as some of our clients have applied them.

  1. Environment Simplification
    A banking client reduced the complexity of its deposit process by 75% to reduce the number of systems to two.
  2. IT Organization Design & Sourcing
    A major school district established a competitive bid process which resulted in negotiated savings of over 15%.
  3. IT Spend Analysis & Portfolio Management
    A major North American insurer analyzed its IT spend and was able to reallocate $300M in “non-discretionary”  spend to strategic projects.
  4. Delivery Throughput
    A financial services company implemented an SDLC framework to move to a more mature level of process discipline using CMMI, and standardize the competency requirements of solution delivery staff and expect a 10-20% improvement in project delivery efficiency.

Simplifying the IT estate is something that many organizations wait to do, resulting in something my partner Paul Blase calls “waxy buildup.”  Whether you wait 3-5 years or more between clean-ups or try to keep the house tidy every year is your choice.  In either case, I hope that this framework helps you get your house in order.
cc licensed flickr photo shared by mullica

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  • I never put much stock in the reduction of physical real estate as a serious IT cost savings, but I have to say I’ve been brought around to it over the past year. Seems like a no-brainer in 2010 to eliminate physical space in favor of temporary hoteling, telecommuting and telepresence. Save electric, rent, IT infra, telecom infra, insurance, cube infra, etc. Could be big savings.

  • I never put much stock in the reduction of physical real estate as a serious IT cost savings, but I have to say I’ve been brought around to it over the past year. Seems like a no-brainer in 2010 to eliminate physical space in favor of temporary hoteling, telecommuting and telepresence. Save electric, rent, IT infra, telecom infra, insurance, cube infra, etc. Could be big savings.

  • Rob Boerman

    I think in today’s corporate world the most costly thing of them all is the presence of ‘preferred supplier’ contracts. Everywhere I look companies, and especially larger corporations, are completely being scr*wed over by long-term contracted ‘partners’. Instead of using the relationship to better and better understand the client’s business and deliver solutions to real business problems against acceptable cost, most tech (consultancy) companies try to milk every last drop out of each and every project, especially ‘once they’re in’. What I do not understand is that companies like these don’t see the added benefit in building truly benificial relationships, resulting in long-term wins like repeat business, word of mouth and so on. In today’s social world I think that is the only way to become a long-term winner. At the same time I do not understand the corporations that are being taken advantage of.
    CIO’s should constantly analyze if partners truly understand the business objectives and are able to translate them into usable and cost-effective solutions, or find another partner.

    Nice topic by the way!

    Cheers,
    Rob

  • Rob Boerman

    I think in today’s corporate world the most costly thing of them all is the presence of ‘preferred supplier’ contracts. Everywhere I look companies, and especially larger corporations, are completely being scr*wed over by long-term contracted ‘partners’. Instead of using the relationship to better and better understand the client’s business and deliver solutions to real business problems against acceptable cost, most tech (consultancy) companies try to milk every last drop out of each and every project, especially ‘once they’re in’. What I do not understand is that companies like these don’t see the added benefit in building truly benificial relationships, resulting in long-term wins like repeat business, word of mouth and so on. In today’s social world I think that is the only way to become a long-term winner. At the same time I do not understand the corporations that are being taken advantage of.
    CIO’s should constantly analyze if partners truly understand the business objectives and are able to translate them into usable and cost-effective solutions, or find another partner.

    Nice topic by the way!

    Cheers,
    Rob

  • Chris,

    Thanks for the great list. Very valuable options. Sorry I missed your all call on twitter.

    I’d suggest adding three more suggestions that have proven equally valuable at cutting cost.

    1) Move commodity applications like email or CRM to vendor hosted solutions like MS BPOS or Google Apps.

    2) Move selected data & custom built apps to cloud hosted services.

    2) Convert internal IT products from a product delivery model to a service delivery model.

    Each option transfers IT cost from ever growing CapEx to controllable OpEx and moves the total cost of IT from the CIOs budget to the budget of each business line, where it belongs. However, these come with a word of caution: Over zealous cloud migrations can add more cost than they save. A clear understanding of the IT portfolio is essential.

  • Chris,

    Thanks for the great list. Very valuable options. Sorry I missed your all call on twitter.

    I’d suggest adding three more suggestions that have proven equally valuable at cutting cost.

    1) Move commodity applications like email or CRM to vendor hosted solutions like MS BPOS or Google Apps.

    2) Move selected data & custom built apps to cloud hosted services.

    2) Convert internal IT products from a product delivery model to a service delivery model.

    Each option transfers IT cost from ever growing CapEx to controllable OpEx and moves the total cost of IT from the CIOs budget to the budget of each business line, where it belongs. However, these come with a word of caution: Over zealous cloud migrations can add more cost than they save. A clear understanding of the IT portfolio is essential.

  • Len

    It Cost Saving is a big item on CIO and IT managers:
    My thoughts on 5 areas to look at:

    1) Cost acesssment and inventory IT, if you do not have a good handle on where you are spending and how that relate to yuor peers.

    2) Rationizalize what you are doing (apps, development, ops, …) and determine if it is aligned with a cost reduction strategy?

    3) Look at alternative IT options like SSAS, Virtulization of core infrastructure, cloud and just stop doing some things.

    4) Staffing and organization alignment. This can help in productivity also

    5) Goverance of all things IT and how you spend, can you reduce the IT costs in business terms?

  • Len

    It Cost Saving is a big item on CIO and IT managers:
    My thoughts on 5 areas to look at:

    1) Cost acesssment and inventory IT, if you do not have a good handle on where you are spending and how that relate to yuor peers.

    2) Rationizalize what you are doing (apps, development, ops, …) and determine if it is aligned with a cost reduction strategy?

    3) Look at alternative IT options like SSAS, Virtulization of core infrastructure, cloud and just stop doing some things.

    4) Staffing and organization alignment. This can help in productivity also

    5) Goverance of all things IT and how you spend, can you reduce the IT costs in business terms?

  • At a minimum I would argue that IT strategy must align with the business strategy.

    Going further, through my recent research (at my blog) I posit an “IT Investment Impact Implication” model. This model puts forward the idea that to achieve maximum benefit from IT investment 3 things have to be consiudered:
    1. the alignment of the IT and business strategies
    2. the spread of different IT systems
    3. the maturity of business processes

    Its not about the cost so much as the increased opportunity available

  • At a minimum I would argue that IT strategy must align with the business strategy.

    Going further, through my recent research (at my blog) I posit an “IT Investment Impact Implication” model. This model puts forward the idea that to achieve maximum benefit from IT investment 3 things have to be consiudered:
    1. the alignment of the IT and business strategies
    2. the spread of different IT systems
    3. the maturity of business processes

    Its not about the cost so much as the increased opportunity available

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