Cost reduction, a fight with Badr Hari?

I got a question the other day about cost-cutting in IT. The question was actually what I thought about that and how I would do it. Before I could even begin to tell a story, I was given a prerequisite: the IT budget must be reduced, so no "flight to the front" with higher IT costs and possible benefits in the business. The latter is about saving with IT rather than saving on IT. This precondition immediately gave me the feeling of having to fight Badr Hari in handcuffs with my arms behind my back. Yet, I do see opportunities.

Cost reduction in IT 
IT costs management 
Legacy solutions 
Artificial Intelligence (AI) deployment 
Cloud solutions for IT cost reduction

IT costs I distinguish in four: 'run', management, renewal and innovation. Not academically researched but useful as a reference: run are the costs you incur to keep the network, data center, applications and clients up and running, management are the costs you incur for user support and some adaptive management, renewal is about costs of replacing applications and technical components and innovation is about costs for substantially new technology and functionality. Not infrequently the split is 80/20, that is, 80 percent of the annual budget goes on run and management and only 20 percent is spent on renewal and innovation.

Run and management are difficult to influence, they are operational costs (OPEX) and much of it is tied up in people, licenses, service agreements, space, depreciation, etc. Going to the cloud doesn't bring much relief financially either (opinions are divided on this but it often involves moving from investment costs (CAPEX) to OPEX). Certainly useful but has already been made by many organizations. In addition, the ability to influence costs of cloud vendors is mostly low due to multi-year contracts. The moments when the contracts open is the time to re-examine the market of service providers and check whether cheaper solutions are conceivable. Being critical of the number of licenses needed and exchanging 'best of breed' for 'best of suite' can also provide starting points for cost reduction. This then brings me to the next domain of cost.

Renewal. There is certainly an opportunity there. Leaving "legacy," solutions with which an organization's employees are often fused, is difficult and often evokes a mountain of resistance. Yet it's important to do so: 'off the shelf' solutions, configurable for customization - without complicated and expensive programming -, from the cloud and with a broad customer base (that's like the greengrocer's, if there are a lot of customers the costs go down and the goods stay fresh) often offers a great solution. Of course the costs come before the benefits, but in this case the reaping is close.

When it comes to real innovation, I do think it gets tricky. Like when deploying artificial intelligent (AI) based solutions. Moreover, these are often focused on business and benefits. Innovating yourself out of the crisis sounds nice, but it is difficult and risky. Coming back to my fight with Badr Hari, is that really the time to try out a new side-kick-karate-kid crane kick-high-in-the-air for the first time? Probably not! After all, "When you get shaved you have to sit still," and under the current economic climate, IT organizations are certainly getting shaved.

And yet, for the IT organization, possibly a little closer to home: AI can help just fine in deployment for diagnosis and prediction. An innovative service provider can probably provide better as well as cheaper services with AI. Renewal and innovation can go hand in hand in the IT domain!

To be fair, I am not entirely unscathed by the cost reduction battle. But I do see opportunities. By staying level-headed and rationalizing, for example on licenses. By not letting myself get crazy and going for the cloud, 'best of breed' and 'off the shelf'. And by partnering with an innovative partner who deploys intelligent technology to provide high-quality services at a low price. A nice mix of savings and opportunities along all four axes mentioned.

Also looking for a suitable way to save costs? On Jan. 27, Highberg is organizing the CIO seminar "Strategic Cost Management. More information and registration, via this link.

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