Many CIOs are stuck in a cost-cutting cycle driven by simple expense-line trimming that is not tied to business outcomes. As a result, they are struggling to exploit technology fully throughout their enterprise in the move to digital business. A new approach to IT cost optimisation is needed.
While opportunities remain to reduce costs in every area of IT, whether through consolidation, streamlining, selective outsourcing or improving procurement to get the best pricing and terms, these tend to provide only modest savings. While it takes more effort, there is significantly more potential for IT savings by showing business value.
One of the most common questions asked of CIOs is, "What do we get for our IT spending?" They can answer this question by developing financial transparency and running IT like a business.
One of the first steps is to understand baseline IT costs and benchmark IT spending. Leading organisations perform this assessment annually and incorporate it as a discipline within their IT cost management practices. Not only does this show stakeholders that the IT organisation is looking to improve against an external standard, it demonstrates credibility on part of the CIO that they will not become complacent in their role, even if the business sees them as adding value.
Most IT organisations will break down their budget by functional areas, such as support, data centre, applications and voice and data networking. The second part is to define the business services that IT enables, for example, automated billing, workplace support, customer service, automated operations/manufacturing or business transformation.
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IT organisations that operate as in-house technology service providers rather than as proactive business partners, commonly lack the skills needed to engage in the broader business discussions demanded by digital business.
Cost management is important by helping to demonstrate credibility, but it does very little to demonstrate business value by itself. CIOs that can master running IT as a business stand a greater chance of being able to access greater budgets across the enterprise. Once IT becomes known as having the ability to help contribute toward factors such as improving customer retention or operational efficiency, CIOs will be invited to be involved at a greater level towards helping shape business strategy.
Next: CIOs need to support a 360-degree approach
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