Spend Less on IT, Drive More Value: How Best-in-Class Organizations Do It Spend Less on IT, Drive More Value: How Best-in-Class Organisations Do It George Ambler George Ambler

How Do Your Clients Perceive IT? Our Perception of IT Their Perception of IT ERP Cloud Digital Do We Run IT Like a Business?

Key Issues What is the best way to approach IT cost optimization? How to manage IT cost optimization using Gartner’s four phase process How can a broader approach to IT optimization deliver breakthroughs that increase IT's contribution to business success?

Characteristics of IT Cost Optimization Programs Leading Practice: Treat IT Cost Optimization As An On-going IT Discipline Successful IT cost optimization programs have common characteristics that deliver sustained results as compared to typical cost cutting programs Characteristics of IT Cost Optimization Programs Have a clear definition of short- and long-term success Operate from a basis of fact rather than speculation Look at the Demand side of IT as well as Supply side Prioritize cost savings opportunities taking into account risk to implement in addition to financial payback Align IT Cost Optimization management disciplines with business alignment objectives Focus on successful execution, including a program in place for benefits realization to hold people accountable through measured performance Use working capital from IT savings to self-fund improvements towards business Evaluate Strategize Execute Optimize Manage Strategize Our services constantly evolve with clients' changing needs, but our focus on results never changes

Gartner Framework for IT Cost Reduction Business Restructuring and Innovation Process improvement, reorganization, new methods Joint Business and IT Cost Savings Implement cost-saving technologies with the business Cost Savings Within IT Identify opportunities to reduce IT costs IT Procurement Get the best pricing and terms for your IT purchases Difficulty Value Different types of cost optimization involve different parts of the organization and varying IT department decision rights

Key Issues What is the best way to approach IT cost optimization? How to manage IT cost optimization using Gartner’s four phase process How can a broader approach to IT optimization deliver breakthroughs that increase IT's contribution to business success?

Manage IT Cost Optimization Effectively Using Gartner's Four Phase Process Phase 1: Establish Baseline Phase 2: Identify Opportunities Phase 3: Develop Capture Strategy Phase 4: Realize Benefits Capture Total IT Cost Identify Viable Alternatives Feasibility Planning Stand Up ITCO Program Office Create Detailed Road Map Create the IT Base Case Analyze Improvement Options Set Measurable Targets Establish Cost and Performance Baseline Relative to Peers Evaluate Risk vs. Reward Create Benefits Dashboards to Measure and Monitor Prepare Org. Change Program

Cross Industry Averages 1. Establish a Baseline Cross Industry Averages 2013 2014 IT Spending % of Operational Expenses 4.4% 4.3% IT Spending % of Revenue 3.5% 3.3% IT Spending per Employee $12,696 $13,100 IT Employees % of Total Employees 5.3%* 5.0%* Run 67% Grow 20% Transform 13% IT Capex 29% IT Opex 71% Apps Dev. 18% Apps Support 16% Data Center 23% End User 11% Data Network 9% Service Desk 7% Voice Network 6% IT Mgmt. 6% Fin. and Admin. 4% Hardware 16% Software 20% Personnel 41% Outsourcing 23% Contractors 20% In-house 80% Gartner IT Key Metrics Database, 2014 *2012/2013 Figures for IT Employees

Start With a Follow-the-money Approach to IT Cost Optimization

Cost Optimization Opportunities Remain in Every Area of IT Differences Between Average and Best Performers Overall IT Spend 38% difference in cost Application Development 53% difference in cost per function point Application Support 55% difference in cost per function point Mainframe 35% difference in cost per installed MIPS Unix Server 62% difference in cost per server Wintel Server 32% difference in cost per server Storage 44% difference in cost per TB Desktop 22% difference in cost per device Help Desk 33% difference in cost per handled contact Wide-area Data Network 43% difference in cost per device Local-area Network 51% difference in cost per active port Wide-area Voice Network 27% difference in cost per minute Voice Premise Technologies 34% difference in cost per active extension

2. Identify Opportunities and Assess Viability For each opportunity generated: What's the upside? Is it worth the effort? ? Costs, Time, and Risks Potential Benefit: How big is the saving if the action is implemented and how does it affect cash flow? Benefits Small Medium Large Business Impact: What impact will this have on the business? Negative None Positive Time Requirement: Can you capture the savings in this fiscal year? >18 months 6 to 18 months <6 months Degree of Organizational Risk: Will your leaders ensure the changes are made? Is your organization capable of adapting to the changes? High; staff redundancies, and re-engineering of processes and structures Moderate; limited changes in roles, structures, and processes Low; no staff reduction, nor changes in organization and processes Degree of IT Technical Risk: Is there a risk that the change will undermine the ability of your systems to deliver? High; impacts OS, DB, middleware, and applications Moderate; impacts few components of the architecture Low; little more than "moving boxes" Investment Requirement: Does the change require a large upfront investment before savings can be captured? Is the organization willing to make an investment at all? High Moderate Low/None

3. Develop Strategy and Ready Change Program Application Portfolio Optimization Is the risk worth the reward? $8.0M Outsource Application Development and Support Implementation Risk/Time Improve Application Delivery Reform IT Governance and Demand Management $10.5M $5.7M $6.0M Optimize Infrastructure Service Delivery $1.5M Improve ILM and Data $8.0M Optimize End-User Support $1.5M $2.0M Recompete Data and Voice Networks Opportunities likely taken as natural part of business Benefits/Cost Savings ILM = Information life cycle management

4. Track Benefits Large Program Benefits Predicted Unanticipated Business Changes Complex Technical Solution Lack of Org. Change Mgmt. Poor Estimation (Benefit Size, Investment) Increase Virtual-ization Mature S/W Asset Mgmt. Practices Large Program Benefits Predicted Mature Key ITIL Processes Re-negotiate S/W Rationalize Applications Deploy Info. Life Cycle Mgmt. Often Smaller-Than-Predicted Program Benefits Realized

Key Issues Which IT cost optimization techniques will be most effective going forward? How can IT executives break through cost-cutting barriers and optimize business performance? How can a broader approach to IT optimization deliver breakthroughs that increase IT's contribution to business success?

Traditional IT Cost Cutting Provides Limited Value in an Increasingly Digital World IT Cost 4.3% of Enterprise Costs (Opex*) All Other Business Costs *Industry Average 4.3% Government 9.1% Banking 8.0% Healthcare 4.3% Utilities 3.6% Transportation 3.1% Manufacturing 1.8% Retail 1.8% Source of IT Budget Data: "IT Key Metrics Data 2014: Executive Summary" (G00258818)

Change the Approach to Deliver ITO360 Traditional View Cost cutting Looking at constrained opportunities within IT IT supports the enterprise Cost accountability stays in IT Single view of the IT budget (General leader view) "Good enough" cost transparency ITO360 View Value adding Looking at multiple opportunities outside IT IT is a key partner Cost accountability passes to the business Multiple views of the IT budget World-class cost and value transparency

Work Smarter: Change IT's Role Through ITO360 Approach Increasing IT Engagement and Skills Optimize Business Model Technology Innovator Information Architect Process Designer IT Technician Optimize Information Delivery Optimize Business Processes Optimize IT

Recognize and Overcome the Barriers That Keep IT in Cost-cutting Mode Typical Barriers: Rank Top 3 ____ Incomplete business strategy Business silos Lack of integrated KPIs Insufficient business-IT skills Low enterprise risk tolerance Low IT credibility Cultural issues Poor innovation processes Lack of leadership Inadequate governance

Recommendations Be proactive when managing IT cost optimization. Create a cost optimization team. Get the team to leverage the four steps to build a solid IT cost optimization program Break out of cost-cutting mode by taking transformation actions to position IT and the enterprise IT for success. Build a skilled business and IT workforce focused on enterprise optimization. Forge partnerships with business stakeholders and develop the vision for what ITO360 looks like in your enterprise.

Recommended Gartner Research Predicts 2014: Taking a 360-Degree View of IT Optimization Will Deliver Increased Value John Roberts and Barbara Gomolski (G00258191) ITO360: Break Through IT Cost-Cutting Barriers to Optimize Business Performance John Roberts and others (G00262676) How to Manage the IT Budget Wisely Through Cost and Value Optimization Barbara Gomolski and John Roberts (G00263355) For more information, stop by Gartner Research Zone.

Spend Less on IT, Drive More Value: How Best-in-Class Organizations Do It Spend Less on IT, Drive More Value: How Best-in-Class Organisations Do It George Ambler George Ambler