With the costs of digitalisation putting pressure on technology budgets, IT executives face the challenge of maintaining or even reducing the IT cost base whilst still delivering innovative IT solutions and providing a competitive edge for the organisation.
While gaining cost transparency and control is the objective of most organisations, the requirements of daily IT operations has often meant that multiple systems and processes mean that the true cost of IT can be difficult to assess.
The result is that many businesses often do not understand the true cost of IT and the cost drivers. Without this insight, basic cost reduction techniques can then be unsustainable, such as cancelling upgrades stopping contract or consultancy resources or reducing services levels.
These initiatives will reduce costs in the short term, but inevitably costs will increase over time, and service quality, and customer experience will inevitably suffer.
Some of the common questions we ask our clients are:
Is there a focus on cost data rather than MI, for example a lack of transparency of costs to the business units?
Do you consider which non-financial data (e.g. volumes, performance) are needed in order to truly understand our costs?
Is IT managed as a cost centre, without a P&L and commercial mindset?
Is there the lack of a clear line of sight between IT decisions and business value?
Can you prove independently that we are delivering value for money to the company?
Is your IT spending aligned with our performance and value goals?
Can you sustain baseline costs and identify improvement areas?
Henderton has developed experience in IT cost optimisation over a number of years. We help our clients optimise their IT assets by identifying cost reduction opportunities, developing dedicated business cases and roadmaps. These span commodity IT, and business enabling initiatives.
We have developed an inclusive approach designed to provide transparency and bring along stakeholders.
1. Definition of project scope: executive discussions, definition of scope and identification of key stakeholders.
2. Data collection: gathering of architectural and financial data, and interviews with key staff to establish cost transparency and assess technology costs across the entire organisation. Assessment using value stream mapping, cost-driver trees and operating model analysis.
3. Identification of optimisation opportunities: Categorisation of all potential savings include financial and organisational impact. For example: contract review and renegotiation, supplier best practices, telecoms and networks, maintenance, labour and contractors, and hardware and software.
4. Quantification and prioritisation: review of opportunities with stakeholders, assessing high, medium and low value versus the risk involved.
5. Create and implement roadmap: implement, track and measure savings and transformation, ongoing benchmarking, and develop capabilities to extend the cost management focus and manage IT as a value-driving entity.
This approach of ‘top-down’ benchmarking to identify attention areas of spend, combined with a ‘bottom-up’ analysis of reality enables cost savings to be identified quickly and efficiently. We can drive results in the short-term while producing sustainable savings through increased productivity and efficiency.
Henderton has decades of experience in developing the tools and methods required to assess companies’ IT cost landscapes and implement controls to support effective IT commercial decisions. Combined with this is the expertise to establish the governance structure and procedures to enable sustained improvements over the long term.
Strategic approach: understanding of the overall company’s objectives and approach, positioning of IT as a value-driver by explaining the value IT generates and the objectives of optimising business demand, improving flexibility of cost, and improving budget accuracy.
Value chain mapping: TCO reviews across the IT function, service line or supply chain, mapping cost and customer journeys to understand how spend links through to revenue and customer outcomes.
Application costs: assessment of the productivity and cost-efficiency of applications to demonstrate the value and prioritise future application spending.
Cost transparency: assessment of the completeness and accuracy of IT cost reports, design of new reports where necessary, and communication to the business, and management of service cost lifecycles.
Cost and service optimisation: breakdown of service and delivery costs, identification of cost optimisation opportunities, building cost models including both financial and operational data, and quantification of ongoing benefit potential.
Implementation planning: analysis of process, behavioural and capability inhibitors to commercial management best practice, gap analysis and creation of pragmatic roadmaps.
Cost optimisation: holistic approach covering supplier chain rationalisation, development of recharge mechanisms, vendor management programmes.
Re-investment: development of options for some cost savings to be reinvested back into ongoing improvement of IT to drive sustainable reductions.
If you would like to learn more about our experience, please contact our Technology practice team.
We have helped numerous companies across a range of sectors to improve the transparency of their cost base and optimise their IT spend:
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