1. Consolidate Service Management to Drive IT Cost Optimization
Embrace a big picture approach to move beyond cost reduction.

2. Introduction
Info-Tech's cost optimization strategies provide an additional opportunity for cost reduction beyond conventional cost cutting. Don’t wait for a market upswing to free up discretionary spend for new projects – your competitors won’t. Start consolidating service management today to maximize the benefits of tiered services, reduce excess capacity, and improve vendor management.
This Research Is Designed For:
This Research Will Help You:
IT leaders who have already implemented cost reduction measures and are looking for further cost optimization opportunities
IT leaders seeking to optimize IT costs, but unsure where to begin
IT leaders seeking to compare IT costs to industry benchmarks and take appropriate steps
Match service levels to actual user needs to align investment with performance
Avoid unnecessary and wasteful resource acquisitions
Reduce the cost and improve the value of vendor services

3. Executive Summary Situation Complication Resolution
In the aftermath of a recession, and with continued uncertainty in markets, CIOs seek to optimize IT costs to cope with slow budget growth.
The need to reduce costs must not undermine IT’s ability to capitalize on a market upswing, should one come.
In the interest of standardization, some IT departments do not differentiate the needs of different user groups. Others fail to look holistically when planning resources or choosing vendors.
Years of recession have led CIOs to exploit many of the conventional methods for cost reduction, leaving little low-hanging fruit for their ongoing efforts.
Competitive pressure makes ongoing cost reductions an imperative, not a nice-to-have.
Standardized user classification opens the gateway to additional cost optimization.
Conduct a rigorous classification to provide tiered services that target the needs of individual user groups.
Consolidated capacity planning improves efficiency of resource procurement.
Anticipate the impact of business scenarios on user groups and plan required capacity around the aggregate demand picture for shareable resources, in each foreseeable scenario.
Multi-service vendors can better understand your user classification and provide tiered resources.
Seek out multi-service vendors to match your current and foreseeable service needs.
Prioritize next steps for cost optimization and use the tools developed in this set to articulate your strategy.
Situation
Complication
Resolution

4. This set extends Info-Tech's research on effective financial management
Picking up where Info-Tech’s report on project demand left off, this solution set provides guidance on how to achieve efficiency gains while leaving IT capabilities intact in the post-recession world.
Develop Successful Strategies for Budget Planning, Proposal, and Negotiation
Understanding current and projected resource constraints and capacity requirements before budget pitch improves budget proposal success. A well-informed IT leader with a valid reason for budget requests is more likely to get what he or she needs.
Manage Uncertain Project Demand with Right-Sized Resource Agility
Assess whether there is a problem in terms of agility and funding variability alignment in your organization.
Reduce the backlog of approved and funded projects.
Consolidate Service Management to Drive IT Cost Optimization
Consolidate and standardize key planning activities:
Tiering of services
Capacity planning
Vendor relationships

5. Assess the need for cost optimization
Rationale for cost optimization
Benchmarks for assessing your own need to optimize
Assess the need
Standardize service tiers
Plan for shared resources
Consolidate vendor relationships
Next steps

6. Cost optimization is the next step after cost reduction and cost containment
The following progression resonates with many IT organizations today. Cost optimization is the next step for preserving your competitive edge in today's economy.
The 2009 budgets got slammed by 7.04% because they were determined in 2008, in the midst of the Global Recession.
The budgets of Recession Plateau saw an average increase of 1.83% in 2010, and a somewhat higher 5.47% increase in 2011 – a noticeable move towards the Post-Recession.
Flat
budgets
Broad and immediate
budget cuts
Modest budget
increases
Global Recession
Recession Plateau
Post-Recession
Cost Reduction
Reduced IT spend by 5-15% across the board
Strategic/innovative projects shelved indefinitely
Full cost-cutting model
Cost Containment
SLAs normalizing after budget cuts
Non-discretionary/operational spend begin to return to pre-2008 levels
Discretionary spend curtailed
Cost Optimization
Shelved strategic projects being reconsidered
CIOs need to create leeway for discretionary spend
Cost reduction and cost containment already explored and maximized
Additional tactics are needed to further optimize costs
(Source: BLS.gov and census.gov)
Do you find yourself in the cost optimization phase? If so, read on to understand how the approach to expenses is changing in the post-Recession word. If you are still in the cost reduction and cost containment phases, please refer to Info-Tech’s other research, such as Reducing IT Cost-to-Serve and research specific to individual areas of applications and infrastructure (listed in the Next Steps section).

7. For an effective cost optimization strategy, take a holistic view of the IT service value chain
Techniques specific to individual IT services and resources were explored in the cost reduction and the cost containment phases. Cost optimization requires one to take a holistic outlook of the different components that go into servicing the end user.
The IT service value chain
Cost Reduction and Containment
Cost Optimization
Strategies targeted at individual IT services…
Strategies that depend on a holistic view of all IT services…
IT services
(e.g. help desk, application development, telephony, )
Services are powered by resources
Individual IT resources…
IT resources
(e.g. network, staff, data centre, application licenses)
All IT resources…
Resources are provided by vendors
And individual vendor relationships…
Vendor relationships
The resources that support the end-user services require external vendors to be engaged by IT.
And all vendor relationships…

8. Consolidate service management to drive cost optimization
Cost reduction methods focus on the costs of individual IT services and resources. Cost optimization manages the elements of cost holistically.
Cost Reduction Model
Inconsistent tiering of services
Separate capacity planning for resources
Individual vendor contracts
Cost Optimization
Standardization of service tiering
Shared capacity planning
Centralized vendor management and vendor consolidation
Vendor 3
Vendor 4
Resource Powering Service 1
Vendor 1
Vendor
Resource Powering Service 2
Vendor 2
Resource Powering Service 3
Multi-service Vendor(s)
Standard Service for all Users of Service 1
Shared Capacity Planning for Multiple Services
Tier 1 Service Level
Standard Service for all Users of Service 3
Tier 1 Service Level
Tier 1 Service Level
Tier 1 Service Level
Tier 2 Service Level
Tier 2 Service Level
Tier 2 Service Level
Tier 2 Service Level
Tier 3 Service Level
Tier 3 Service Level
Tier 3 Service Level
Tier 3 Service Level

9. Service consolidation drives cost savings at each stage of the IT value chain
Consolidated management exposes economies of scale and other efficiencies that do not occur at the individual service or resource level.
Impact
Benefit
Standardized service tiering
Rationalize patterns of service usage with the nature of user responsibilities
Maximizes the benefit of tiered services, producing the greatest impact on users at the least cost
Shared capacity planning
Offset foreseeable risks in demand for one service against uncertainty in demand for another
Reduces the excess capacity the organization needs to carry at any one time
Vendor consolidation
Seek out opportunities to build relationships with vendors who provide multiple services
Improves function flexibility and SLA terms, key elements of supporting multiple service tiers

10. Focus on reducing non-discretionary spending for cost optimization efforts
Total budget
Organizations must prepare for a potential upswing in demand while keeping costs low. Focus on minimizing non-discretionary expense to free up discretionary funding.
Discretionary
Discretionary
Discretionary
Non-
discretionary
Non-
discretionary
Non-
discretionary
Time
The challenges
On the verge of economy take-off, IT budgets may not yet experience significant increases, yet organizations need to free up discretionary spend for new or revisited projects.
Now is the time to invest in the major IT trends, such as cloud computing, mobile devices, and social media. It
During recessions organizations often cut out all discretionary work until they understand how the recession is playing out. The challenge is to keep reducing non-discretionary spending.
The purpose
The purpose of cost optimization is to free up those discretionary funds by achieving efficiencies and future savings at the non-discretionary level.
As those savings begin to kick in, more money is freed up for discretionary spending, and more can be invested to optimize the non-discretionary initiatives.

11. Determine whether cost optimization is possible based on the industry benchmarks for non-discretionary spending
Assess your organization’s ability for cost optimization based on your non-discretionary spending per user ratio.
Info-Tech research has not seen much deviation across verticals, but there are significant differences in non-discretionary spending of small, medium, and large organizations.
Economies of scale allow larger organizations to spend less than their smaller peers.
(Source: Info-Tech Research Group, n=261)
Small: 1-1,000 employees, 1-10 IT staff
Medium: 1,001-5,000 employees, IT staff
Large: 5,000+ employees, 50+ IT staff
Despite these differences, the advice in this solution set applies to organizations of any size.

12. Info-Tech Research Group Helps IT Professionals To:
Quickly get up to speed with new technologies
Make the right technology purchasing decisions – fast
Deliver critical IT projects, on time and within budget
Manage business expectations
Justify IT spending and prove the value of IT
Train IT staff and effectively manage an IT department
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