There are certain practices that every CEO inside IT companies should have in mind when it comes time to deal with IT costs. In this article, I want to talk about 7 key points related to the best practices for IT cost optimization every CEO should follow.
The 7 key points of IT Cost Optimization:
- IT cost optimization is a continuous discipline
- The role of CIO
- Improve price and terms with your suppliers
- Consolidate shared services
- Achieve a standardized infrastructure
- Improve data management
- IT cost optimization budgeting best practices
Let’s go now to the topics.
IT cost optimization is a continuous discipline
There are common questions about cost optimization in IT like: How important is it? Is it the same as resource optimization? Is it just a budget exercise to meet numbers? Like any other problems in the field of cost optimization, we can face it from different angles. According to Gartner cost optimization is a business-focused continuous discipline to drive spending and cost reduction while maximizing business value.
- Obtaining the best pricing and terms for all business and IT purchases.
- Standardizing, simplifying, and rationalizing platforms, applications, processes, and services.
- Automating and digitizing IT and business operations.
The role of CIO
The role of the CIOs (Chief Information Officer) has changed tremendously in the last 10 years. In the past, they were in charge of bringing technological innovation to the company. But today, they have lost that prominence, and it seems that their main role is just to do the systems work and make operational IT spending as cheap as possible. Now, more functional areas like CMO, CFO, or logistics are running projects of eCommerce or business intelligence within most IT companies. In these difficult times of COVID-19, It could be a good idea to remind them what the CIOs have to do. They have to return to manage new projects in the functional areas. And for it, CIOs need to count on strategic partners with the best capabilities, at a reasonable cost, in the most convenient time zone.
Improve price and terms with your suppliers
IT companies are frequently focused only on getting the best price for requested purchases. But they need also to keep an eye on some key items to improve the cost optimization:
- Implementation support
- On-site representation
- Marketing cooperation
- Training credits
- Classes on-site
- Less tangible benefits and compensation
- Terms help optimize costs too
This kind of practice makes that every dollar spent worth more for the organization. You need also to be careful with your vendor’s conditions. Try to always avoid this kind of practices:
- Being lock-in through contracts with high exit costs
- Extremely long terms contracts
- Incur in contract violations by working with a competitor
These are important points that could limit your company’s ability to try new alternatives, move to new technologies, and achieve important innovations. On the other hand, you need to implement good practices as a CEO to achieve the best results on cost optimization.
It will always be profitable to:
- Establish win-win relationships with suppliers
- Improve speed and accuracy
- Minimize the risk of new implementations
Consolidate shared services
It will be better for people in charge of the administration of Storage, System, and Network, to work under the same team. This way your organization will minimize rework, reduce duplication of efforts, and achieve consistency in operations. Try to avoid pair application and production support services exclusively with the product groups they support. Because this can limit those resources from adding more value to the organization as a whole. Although these groups are part of the IT staff, their priorities have to be defined to the whole business benefit. While still being part of their original business groups, the IT staff can provide knowledge, information, and the flow of ideas when they are engaged with other organization’s groups. This kind of practice can also improve the better balance and sharing of the business workloads.
Achieve a standardized infrastructure
To adopt a standardized infrastructure can help keep in control the cost and enhance working quality. Cloud infrastructure helps workers to check through the data and work in a much faster way. Cloud infrastructure can also save time, speed up the work, and help lower the cost of different processes and systems. But it doesn’t mean that you can invest your organization’s money without any judgments. It is essential to do it with cost optimization in mind, to be sure that you are spending your business capital in the right way. Always be secure that you are getting the best return out of it. Integrating, updating, and modernizing devices and applications were usually the core of every IT-specific cost-cutting in the past. But today new Cloud infrastructure solutions can help reduce complexities and simplify software administration. If you are in the point of upgrading to a Cloud environment, the next point can be very useful for you:
- Adopting a hybrid, multi-cloud architecture is a superb idea to speed up processes.
- The process of your organization will be very much agile and convergent within a cloud infrastructure.
- To centralize control and administration it is better to unify diverse systems.
- Implementing a Hyperconverged Infrastructure (HCI) can reduce the number of resources required to maintain all the elements of conventional “hardware-defined” systems by virtualizing them.
- Although investing in HCI has high initial costs, it can significantly reduce overall data center footprint, maintenance, and support costs.
- HCI will add scalability, data efficiency, and faster deployment to your organization’s systems.
Improve data management
Data is undoubtedly a company’s most important asset. Therefore, it should be treated and managed accordingly. In addition to this, a survey by Harvard Business Review showed that cost efficiency is a significant benefit of a data-driven enterprise. The important point is to give the right data to the right people at the right time. When organizations get strategic about data and analytics, they can introduce a data maturity framework that can save up to 25% of the company’s revenue. The fact to achieve digitizing most of the repeatable internal processes can permit your organization to chase more business goals, maximize productivity, and improve ROI. Gartner revealed that it is expected that two-thirds of customer experience projects will make use of IT by 2022, up from 50 percent in 2017. As most support questions are repeated, so these answers can be automated. Customer support through chatbots, called virtual customer assistants (VCA), is becoming more common every day. Besides that, it is a more effective use of resources. This will make it possible that the support staff gives real attention to the customers with deeper issues. Gartner’s study reported that organizations reduced up to 70% of call, chat, and email inquiries and a 33% cost-saving per voice engagement after implementing a VCA.
IT cost optimization budgeting best practices
Budgets are a strategic tool: So it is better to spend to support certain goals and avoid spending in not essential areas.
Manage your budget like it’s your money: Be responsible for what you want your team to accomplish. It’s a good practice to look at areas that you’ve fallen short in the past and analyze new strategies.
Be transparent with your team: It is beneficial when your direct-reports know precisely what they can spend on new investing like new software or training. In the end, it will generate a more trusting relationship.
Difference between cost optimization with cost-cutting: It is usual to confuse cost optimization with cost-cutting or reduction for some business managers, but they are very different concepts. Cost-cutting will aim to reduce the cost of every expense. On the other hand, cost optimization is more about spending the right cost at the right place.
Regular Review and Monitoring: a regular audit of the entire system can help to understand the cost of the whole operation. It is a good practice to examine the methods used and the values they are adding to the workforce. This will serve to determine whether they are useful or not for the business.
Nearshoring, Offshoring: You need a regular staff to manage your business offices. But hiring new employees requires a significant amount of investment. It is a good practice to think about how many people you require at your offices and how many you can have as outsourced. Then you have to think about the best outsourcing method. With Offshoring, for example, the operating activities are relocated to another country. But Nearshoring might be the best option for IT companies that are linguistically and technically focused on highly qualified employees abroad. With Nearshoring you outsource your business processes to companies in a nearby country. This method allows IT companies to maximize business efficiency but reduce the barriers of traditional offshoring. This way your regular staff will have easy communication with your outsource staff, due to the same spoken language, minor cultural differences, and within the same time zone.
To finalize let say that it is essential to get cost optimization, so you’ll know that you are spending the right amount at the right place, and getting a proper return out of it. Following the practices mentioned above can help make great IT cost optimization. The global COVID-19 pandemic affected the economy remarkably. As a result, a growing number of businesses are looking into tactics that optimize IT costs. Be aware of the latest IT cost optimization initiatives with this guide: The Definitive Guide to IT Cost Optimization.
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