0. 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

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

2. 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?

3. 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

4. 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

5. 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?

6. 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

7. 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

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

9. 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

10. 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

11. 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

12. 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

13. 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?

14. 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" (G )

15. 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

16. 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

17. 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

18. 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.

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

20. 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