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The IT department’s metamorphosis from a cost-center into an innovation driver has changed the public debate about the role of technology in the enterprise. CIOs now have exciting things to think about and to plan for.
But IT budgets continue to be a barrier to innovation. Gartner’s report Taming the Digital Dragon: The 2014 CIO Agenda predicted that “…the global average weighted change in CIO IT budgets is +0.2%.”
CIO’s are not getting a lot of leeway to fund the interesting stuff.
So CIOs must resort to finding creative ways to fund innovation. A good place to start would be to look at cutting IT costs.
But don’t rush to implement across the board cost cutting like many organizations did following the economic crisis of 2008-09. Some of these indiscriminate cuts could get your project written up in a future version of the 20 Real-World IT Cost-Cutting Mistakes You Need to Avoid.
A better solution is to make IT operations more efficient in order to keep costs down for the long-term.
Here are a few IT efficiency measures to consider:
Labor is often the most expensive part of an IT operation, and an obvious place to cut costs. But instead of knee-jerk force reductions, consider the following:
Another area where the obvious is not the best approach is hardware. Conventional wisdom says to buy a lot of cheap servers made with off-the-shelf parts to manage applications and data. But these can become a maintenance sinkhole.
Software is the lifeblood of most companies today – but many cost-conscious IT departments would prefer to keep their current versions instead of upgrading software, believing the savings can contribute to the bottom line. But this can come at a cost, as newer versions of software may actually bring efficiencies that can save time through automation and reduced workloads.
There are better ways to save money with software:
On the surface, maintenance contracts are an easy target for budget-conscious IT managers, but these can often have negative consequences later on.
Infrastructure is a tricky area as you can’t achieve instant savings here – but cutting infrastructure costs can contribute to the bottom line in a big way:
KPIs are not just for marketing or finance departments anymore. Institute a culture of setting and tracking the achievement of cost-cutting KPIs to make IT efficiency ingrained in departmental culture.
For example, Jetstar’s Stephan Tame had an ambitious goal: keep IT costs at 1.1% of company revenues. Through innovative practices he has been able to reduce IT costs 6% year-over-year.
This is far from en exhaustive list for how to cut costs – we could write a book about it. But I wanted to emphasize that cost-cutting can be done intelligently, thinking of the long-term cost implications. To paraphrase Matthew Podowitz: use a scalpel not an axe.
And remember the purpose of making your IT operations more efficient: you want to free larger chunks your imperceptibly growing IT budget to fund the sexier and more business impactful innovation projects which and impact on business strategy. More on that in a future post.