Johannesburg, 18 Feb 2020
Technology and the management of technology has moved on since the 1990s and 2000s: We now have architecture, agile, digital transformation, IT services and operations, new and improved IT management tools, and emergent technologies. Overlaid on these developments is the attitude of business towards IT and its value in the organisation. In the digital era, technology and the IT department have become central to organisational success and customer-led strategies.
It is the role that IT plays in an organisation that probably has the most effect on the pressure to cut IT costs. Over the last 10 years, many IT departments have enjoyed a role change in their organisation, becoming more central to business operations and playing a strategic part in the development of new products and services.
In this light, it is important to revisit IT cost-cutting, looking at the changed role of IT, newer technologies and IT methods, and more evolved approaches to IT management and operations.
There is a saying that it is easier to wield a red pen (cut costs) than a black pen (increase revenue). This may be true in small measure for CIOs, but in general, IT costs are already optimised, and any further cost-cutting threatens to affect quality, service levels, and risk profiles. Therefore, it makes much more sense to concentrate on IT optimisation and to focus on business and revenue-generating opportunities provided by information technologies. In other words, IT needs to stop thinking of itself as a cost centre, and start unlocking the potential of becoming a revenue generating component of the business – using its capabilities to drive and enhance growth.
Ultimately, the value provided by IT, and the appreciation of this value, is in the hands of CIOs. Optimisation and communication of both costs and benefits are essential, and benefits realisation is fundamental to improving one's understanding of IT activities, potential, and value.
The role played by IT dictates the cost/value equation in that it affects the pressure placed on the department to either cut costs or improve revenue. If the IT department is seen as a back-office function, CIOs can expect pressure to manifest itself as a “reduce costs of IT by X percent”. However, if IT is seen as central to business progress and success, and as a value-adding unit, CIOs can expect cost-cutting pressures to be balanced against the work they do in improving product and customer services. This is where benefits realisation plays an essential part in changing the pressures that CIOs face. If the CIO can prove the value provided by IT initiatives, he or she will be better placed to resist blanket cost-cutting demands, and rather focus on optimising costs and driving business value. This is no small advantage to CIOs; it affects IT’s role and standing in the organisation.
Cost-cutting strategies in the digital era are more refined than the old “slash and burn” approaches of 10 or 20 years ago. New strategies involve optimised architecting of the technologies, processes, capabilities, applications and even APIs of the organisation. They also require revisiting new and long-standing contracts: more CIOs are moving towards partnership contracts over supplier contracts, as they not only cut costs, but they also move some costs onto partners.
DevOps is an efficiency and effectiveness cost-cutting strategy, both in the IT operational space and in the business. Finally, most CIOs have revisited their outsourcing strategies as the outsource providers change and consolidate. Outsource management companies have acquired the skills and experience to help customers manage their third-party agreements, consolidating all outsource contracts under one roof. Outsource service providers are consolidating to provide wider ranges of services and expertise, while other outsource companies provide niche services, often outside the IT norm for outsourcing: R&D, trend analysis, procurement, and even IT strategy outsourcing. Also, cloud deployments are typically now completely outsourced. Cloud service managers provide cloud architecting, provisioning, consolidation, and metrics services.
Outsourcinghas also become easier, as providers take advantage of videoconferencing, Internet telephony, and instant messaging. Skilled and affordable contractors are as close as your computer. Which is why offshoring is a continually growing trend. New entrants to the offshoring service providers are overtaking India as the prime source, with China predicted to overtake India, and the Philippines, Eastern Europe, Latin America and others in hot pursuit.
The digital world has changed, and a CIO’s cost-cutting strategies must change as well. But at the base of it all is benefits realisation. If you can’t demonstrate value, you can only expect cost-cutting demands to increase.
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