When it comes to innovation and speed, a huge gap exists between where IT leaders want their organizations to be, and what is actually possible given available resources and practical constraints. Legacy-centric IT shops are often dragged down by technical debt and inefficient processes that can result in up to 80% of the budget being used to maintain status quo. The cost on “run”-oriented activities needs to be reduced, so that more investment can be made available to fund digital programs.
To enable the leap across the digital transformation chasm to become a modern digital business, IT leaders need a new paradigm.
Finding that new paradigm starts with a 360-degree view of cost optimization, which combines the benefits of a comprehensive assessment and holistic benchmarking. Using this two-stage process, traditionally competing agendas become complementary: IT leaders can both optimize operations today and fund the innovations that will transform their organizations in the future.
Within this framework, even small-scale cost optimization projects can make a significant impact. On average, advisory-led engagements result in cost savings potential of at least 15%. And it gets better: evaluating and optimizing “as-is” IT operations before comparing against benchmarking data can move the needle to 30%. And finally, by incorporating digitalization—this is where machine learning and automation workflows come into play—as much as 50% improvement is possible.
Net impact and savings opportunities will vary depending on factors like the maturity of the organization, the number and age of assets, the strategic importance of the issues, and speed to implementation. However, a true IT cost optimization evaluates both the cost of work (think labor costs, fair market rates and discounts) as well as the drivers of work, which include factors such as process efficiency, redundant IT from M&As, and productivity metrics related to employees and technology.
Here’s how it works:
Stage 1: “As-is” assessment
A comprehensive assessment reveals where benchmarking will make the most impact. So much can be done to smooth out your existing operations and processes before you start comparing yourself with competitors. Only after you’ve established a true understanding of where your organization is can you work toward being best-in-class. Review assets, operations, and workforce skills. Take a look at technical debt and infrastructure. Understand your organization’s nuances, tendencies, and the specifics of your current environment to reveal the scope of actions you need to take to achieve your optimization goals.
Stage 2: Holistic benchmarking
The assessment overlaps with the holistic benchmarking process. Once you’ve cleaned up your standard operating procedures, you can begin mapping best-practice KPIs to them. This is also where you calibrate metrics, pricing, performance, effort ratios, productivity, staffing structure, and even contractual tenets. Establish a baseline, and from that optimized state, benchmark against the industry and draw up a short list of technologies that are likely to get you to the next level of savings.
To sum up, it would be almost impossible for IT leaders to drive true transformation in the enterprise if IT operations and costs are not first optimized. And without taking a 360-degree approach, any efforts to reduce costs and improve efficiency are bound to fall short of its full potential. IT leaders must optimize today to transform tomorrow.
Sarthak is a seasoned executive and advisor who excels at helping clients transform service delivery. Sarthak specializes in optimizing ITO and BPO models, with specific expertise in IT infrastructure and applications, and finance and accounting (F&A). Sarthak’s expertise spans a variety of industries including manufacturing, consumer products, telecommunications, financial services, and banking.