Now, as the lockdowns gradually ease, companies are facing heightened cost pressure, leading to questions about how to respond to the new normal.
For CIOs, the low hanging fruits from past decades have been picked, so they must take a more inventive and sustainable approach to their IT cost optimization programs. How can they unlock real cost savings without cutting back on innovation or transformation? One way is to use KPIs relating to finance or common IT metrics (e.g. average server TCO) and backed by peers’ data when crafting a solution. True and sustainable cost reductions will only be achieved through a profound transformation of the global operating model, while simultaneously enabling an agile and digital IT.
Traditional cost reduction methods are limited
Traditional cost reductions programs have typically followed either a top-down or bottom-up approach, fighting symptoms instead of the causes of high spending. Both classic approaches provide limited results and are not sustainable. Top-down, cost killing reduction programs that focus on one-off cost reductions can easily bounce back as there is no real structural change. Canceling or putting projects on hold is not only unsustainable but can go against a company’s digital transformation ambition, leading again to an eventual rise in costs.
On the other hand, bottom-up cost reduction is a slow and arduous process that tends to bring only minor cost savings. Typical bottom-up cost reduction programs begin with an as-is analysis of spending with a focus on simply running the business. This approach is time consuming and yields limited real benefits.
It is increasingly clear that the traditional approaches to cost reduction are no longer enough. While on paper they seem ambitious and attainable, they rarely provide tangible results. It’s time for a rethink.
What’s the best way to achieve sustainable IT cost reduction?
At Capgemini Invent, we advocate following five main principles to successfully implement an IT cost reduction program.
- Always support the constantly evolving business needs: It is important to balance cost optimization while simultaneously fostering innovation and supporting the business. Mapping business value with frugal solutions, enriched with quick-wins and transformational initiatives, will allow you to keep transforming, while also optimizing costs.
- Be pragmatic and transparent: Cost optimization plans tend to be developed in silos, leading to disconnects between operations, management, and finance. Avoid this pitfall with full transparency and co-construction of your optimization plan. Share a pragmatic vision and plan with all teams.
- Set a realistic ambition with a clear rational behind it: Savings estimations are often overestimated and unrealistic. Begin by going back and reviewing the cost reduction measures that have already been taken and identifying the successes and failures. Understanding what worked before – and what didn’t – will guide you in the design of your new cost reduction program as it pertains to your DNA. Build more confidence in your plan and targets by comparing key indicators with peers and using real data points in your business cases – not just assumptions.
- Look at what your peers have done to successfully reduce IT costs: Compare their approaches with your own cost cutting measures. It is critical to have a benchmark of IT costs to understand where your weaknesses lie and to discover potential improvement areas. Cost optimization may not deliver tangible savings if budgets are reallocated. Combine the benchmark data with your own KPIs and keep track of your financials from end-to-end in a dedicated framework to ensure real cost savings. Be agile and always ready to rework your business case with fresh data to deliver continuous savings.
Always keep the human factor in mind. Transform your organization through up-skilling and re-skilling. The investment in your workforce today will provide the skills you need for tomorrow. It is also crucial to provide support, such as change management, to identify risky initiatives, and to tailor your communications in order to avoid clashes due to social or trade union pressures.
Immediate, mid- and long-term wins
Efficient and successful cost reductions initiatives depend less on creativity or ground-breaking solutions and more on rigorous execution. To see real success, bring together all five principles with the combination of a top-down approach and a bottom-up focus on a select few clusters with high cost reduction. Start with an analysis of previously realized cost savings and identify improvement areas. Focus on the most important untapped cost levers and on areas where recurring run costs can be saved.
This combined top-down/bottom-up approach yields both initial quick wins and long-term cost reduction initiatives. For example, companies can achieve quick wins of up to 10% IT cost reduction by canceling idle licenses or reducing the number of sub-contractors. Medium-term solutions, such as BYOD (bring your own device) or end-to-end lean IT, will realize substantial savings before you reach a transformation of your as-is structure. Long-term solutions, such as the digital workplace or datacenter strategies, will simultaneously transform technology and target operating model to generate even higher impact. These long-term solutions can provide major cost savings; optimizing your cloud model could generate a 20% reduction in IT costs, while reviewing your datacenter strategy could achieve a 30% reduction.
Launching an innovative IT cost reduction approach
At Capgemini Invent, we’re leveraging our extensive client experience in IT cost reduction to pioneer a sustainable cost optimization offer that tackles the many cost challenges. Using an agile methodology, combined with an innovative accelerator, our new offer allows you to collaboratively design your optimization journey, track financials, and secure real savings. Our accelerator provides unique mapping of IT cost levers and powerful solutions to make a potential impact on your baseline.
Find out more
Discover how our new Bad Weather for IT offer can unlock sustainable cost reduction without cutting back on transformation initiatives.
Vice President – Future of Technology