it cost optimization strategy, best practices & risks

1. This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other
authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied,
distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.
© 2011 Gartner, Inc. and/or its affiliates. All rights reserved.
Jim McGittigan
Kurt Potter
2013 IT Cost Optimization: Strategy, Best
Practices and Risks
@GARTNER_INC

2. Gartner at a Glance
902
Analysts
13,000
Client
Organizations
290,000
Client
Interactions
Vertical
Coverage
in Nine
Industries
5,500
Benchmarks
10,200
Media
Inquiries
World's
Largest
Community
of CIOs
64
Conferences
74% of
Global 500
1,700
Consulting
Engagements
Clients in
85 Countries
72% of
Fortune 1000
500
Consultants

3. This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other
authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied,
distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.
© 2013 Gartner, Inc. and/or its affiliates. All rights reserved.
Jim McGittigan
Kurt Potter
2013 IT Cost Optimization —
Strategy, Best Practices and Risks

4. Gartner's IT Budget Tool
Webinar Attendee Invitation
Compare your IT budget against the Gartner IT Key Metrics
Data industry averages.
High performing IT organizations regularly leverage external
benchmarking and consider best practices of like organizations.
3
- Get a personalized IT key metrics
comparison report.
- Compare your IT spending and
staffing metrics with Gartner’s
Industry averages.
- Establish an external baseline
comparison to improve transparency
and communications.

5. Barriers to Savings—There are Many
Politics &
Silos
Poor IT Cost
Transparency
Lack of
Accountability
Money
Low
Tolerance for
Risk
Lack of IT
Credibility
Legal
Constraints
Resource
Availability
Technical
Complexity
4

6. Key issues
5
• What are the proven practices for
optimizing IT spending?
• What higher maturity management
practices necessary to cut cost the “right”
way?
• How can IT leaders mitigate the risks of
traditional IT cost optimization practices?

7. Key issues
6
• What are the proven practices for
optimizing IT spending?
• What higher maturity management
practices necessary to cut cost the “right”
way?
• How can IT leaders mitigate the risks of
traditional IT cost optimization practices?

8. Everyone Does These Things to Cut IT
Budgets — "Turn the Ship Slowly"
• Renegotiate contracts or make
coterminous
• Reduce contract labor or cut
staff via organic attrition
• Centralize, consolidate or create
shared IT services
• Buy inexpensive IT to replace
older IT
• Standardize IT or reduce
complexity
• Cut maintenance and take
service risks
• Reduce service levels
• Cut travel budgets
• Make across-the-board cuts
7Gartner Research: During the Euro Crisis, Fight IT Cost Optimization Fatigue
With These Saving Strategies http://www.gartner.com/resId=1901914

9. Gartner Framework for Cost Optimization
IT Procurement
Get the best pricing and terms for your IT purchases
Cost Savings Within IT
Identify opportunities to reduce IT costs
Joint Business and IT Cost Savings
Implement cost-saving technologies with the business
Business Restructuring and Innovation
Process improvement, reorganization, new methods
Different types of cost optimization involve different parts of the
organization and varying IT department decision rights
Difficulty Value
8Gartner Research: The Four Levels of Cost Optimization
http://www.gartner.com/resId=860512

10. Government Cost Optimization Initiatives —
Meager Offerings Considering Big Goals
N = 70, 2Q 2009, Federal, State, Local Respondents.
20% Are Federal Govt. N = 13 to 30 for Savings;
Anecdotal
Already
Done
Plan
to Do SAVE
Process
Improvement,
Business
Restructuring &
Innovation
IT Procurement
Cost Savings
Within IT
Joint Business &
IT Savings
• Sharing citizen call centers across agencies 6% 17% 5%
• Sharing IT help desk across agencies 9 19 3
• Standardizing administrative applications (e.g. ERP) 19 34 7
• Hiring internally at lower rates than contract staff 20% 17% 12%
• Deferring desktop replacements 27 30 22
• Renegotiation of contracts 31 40 9
• Consolidation of hardware and software contracts 24 51 9
• Open-source desktop software 6% 19% 11%
• Consolidation of data centers within a single agency 19 19 14
• Automation of software distribution 31 30 5
• IT process improvements (e.g. ITIL, CMMI) 24 43 4
• Virtualization of storage and servers 43 36 11
• Asset utilization analysis 7% 31% 8%
• Teleworking 23 17 4
• Employee self-service 20 30 3
• Videoconferencing 23 33 7
9Gartner Research: Government IT Cost Optimization: What Is Working?
http://www.gartner.com/resId=1138412

11. 10
How Low Can You Go?
Sample Cut Averages of Those Cutting
Average IT Spending Decline, 2009
(Actual) to 2012 (Projected)
(Percentages), Average IT Spending
Change (Increasing, Decreasing and Flat)
Industry 2009* 2010 2011 2012
4 Year
Total
4 Year
Com-
pounding
Average IT
Spending
Change
2009-2012
All Industries -11.0% -10.3% -8.6% -10.3% -40.2% -34.6% 2.7%
Banking and Financial Services -11.9% -11.6% -10.9% -12.1% -46.6% -39.0% 3.5%
Education -7.7% -15.7% -6.5% -9.9% -39.8% -34.5% 2.1%
Government - State/Local -10.8% -8.5% -8.7% -8.7% -36.7% -32.0% 0.9%
Government - National/International -10.8% -9.4% -8.3% -10.0% -38.5% -33.3% 1.6%
Healthcare Providers -9.7% -9.6% -10.0% -13.6% -43.0% -36.6% 4.3%
Insurance -8.8% -9.9% -6.4% -7.4% -32.6% -28.8% 2.8%
Media and Entertainment -10.7% -7.6% -8.5% -9.9% -36.7% -32.0% 2.1%
Professional Services -9.9% -10.0% -10.6% -8.0% -38.5% -33.3% 3.2%
Retail and Wholesale -2.6% -7.3% -8.7% -13.2% -31.8% -28.5% 3.5%
Transportation -8.4% -13.3% -8.3% -9.7% -39.6% -34.2% 2.5%
Gartner Research: IT Metrics: IT Cost Optimization: Vertical
Industry Perspectives http://www.gartner.com/resId=2053215

12. Biggest Opportunities for IT Budget
Reduction by IT Domain
41%
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
Gartner Research: During the Euro Crisis, Fight IT Cost Optimization
Fatigue With These Saving Strategies
http://www.gartner.com/resId=1901914
11

13. Polling Question #1
Question: What are the best hidden, yet biggest,
opportunities or targets for optimization?
A. Enforcement of benefits promised in project business
cases
B. Replacement or reduction in large standardized
platforms with industrialized or tier 2 systems
C. Business process reengineering or optimization
D. Sharing IT resources with competitor or non-
competitor enterprises
E. Better demand management for projects and services
12

14. Gartner Framework for Cost Optimization
IT Procurement
Get the best pricing and terms for your IT purchases
Cost Savings Within IT
Identify opportunities to reduce IT costs
Joint Business and IT Cost Savings
Implement cost-saving technologies with the business
Business Restructuring and Innovation
Process improvement, reorganization, new methods
Different types of cost optimization involve different parts of the
organization and varying IT department decision rights
Difficulty Value
13
Gartner Research: The Four Levels of Cost Optimization
http://www.gartner.com/resId=860512

15. Evaluating Level 1 (Procurement) Maturity
• Does the organization have consistent processes for IT
procurement and contract renegotiation?
• How confident is the enterprise that it is getting the best
pricing and terms, and how does it validate those
assumptions?
Where is the
organization on
Gartner's IT Score
Model for Sourcing
and Procurement?
14

16. Evaluating Level 2
(Cost Savings Within IT) Maturity
• Has the enterprise compared its IT costs against industry
benchmarks? Gartner has the capabilities to assist here.
• In which areas is the firm currently working to save IT costs?
• What are the biggest drivers of unanticipated IT costs in the
enterprise?
Where is the
organization on
Gartner's IT Score
Model for
Infrastructure and
Operations?
15

17. Evaluating Level 3 (Joint Business and IT
Cost Savings) Maturity
• How does the enterprise manage its application portfolio
and overall demand for IT projects and services?
• How do IT leaders work with the business to identify
opportunities for IT and the business to lower costs?
• Where are the enterprise's best opportunities to work with
business stakeholders to reduce costs?
Where is the
organization on
Gartner's IT Score
Model for
Applications?
16

18. Key issues
17
• What are the proven practices for
optimizing IT spending?
• What higher maturity management
practices necessary to cut cost the “right”
way?
• How can IT leaders mitigate the risks of
traditional IT cost optimization practices?

19. Move From Traditional IT to a
Service Organization
• Supply driven
• Technology centric
• Functionally and
technically silo'd
• Insulated and
monopolistic
• Cost-obsessed
• Demand driven
• Internal customer
centric
• Process based
• Competitive and
engaged
• Service-obsessed
Optimizes Assets Service Outcomes
Attributes
Role Steward Service Partner
Cost center External service providerBehaves As
Traditional IT Service IT
18

20. Running IT as a Business: Six Pillars of
Effective Financial Transparency
Pillar 4:
Benchmarking
Pillar 5:
Cost Optimization
Pillar 6:
Performance Metrics
Pillar 1:
IT Budgeting
Pillar 2:
Investment Planning
Pillar 3:
Chargeback/Showback
Running IT as a Business Requires
Effective IT Financial Transparency
19

21. Polling Question #2
Question: Of the remaining Six Pillars for IT financial
transparency, what will help the most
with cost optimization?
A. IT Budgeting
B. Investment Planning
C. Chargeback/Showback
D. Benchmarking
E. Performance Metrics
20

22. IT Cost Optimization Should Be a
Discipline
• IT cost optimization is not a
project; it's a discipline
• New opportunities and
threats emerge as:
- Business imperatives
evolve
- New technologies
mature
- IT assets reach the end
of their useful lives
- New service and
delivery
options proliferate
Our services constantly
evolve
with clients' changing
needs, but our focus on
results never changes
Evaluate
Strategize
Execute
Optimize
Manage
Strategize
21

23. ITCO Program Formulation
Establish Baseline
Identify Opportunities
Develop Strategy
Track Benefits
• Capture all IT service delivery costs - Current year & 5 year forecast
• Categorize by asset class – HW, SW, Personnel, Services, Occup
• Allocate into services - establish unit cost baseline for market and
business tests
• Analyze spend gaps against Market peers
• Identify high value opportunities for cost reduction, service
improvement and business enablement
• Assess benefit against risk to change (as well as time, investment)
1
2
3
4
• Develop strategy & road map for most viable opportunities
• Analyze organizational change needs to manage people impact
• Create communications plan
• Stand up ITCO program office
• Monitor, measure & report
• Identify opportunities to accelerate while managing out risk
22

24. 1. Establish Baseline
By BU
Business
Consumption
View
By Services
Productivity measures compliment IT Budget Analysis
• Infrastructure
• OS Instances per FTE
• TB Storage per FTE
• Handled Contacts per Client Service Rep
• Applications
• Function points per Developer
• Defects per Thousand Function Points
Chargeback /
Showback
Complete the Gartner IT Budget Tool to help
establish an initial baseline (view at left). Such
views (options below) help form insights from
which to better manage IT Spend and set context
for IT cost optimization efforts.
IT Investment Metrics 2013 Figures
IT Spending as % Revenue 3.5%
IT Spending as % Opex 4.4%
IT Spending per Employee $ 13,200
IT Spending Distribution
IT Capital 28%
IT Operational 72%
IT Spending, by Asset Class
Hardware 17%
Software 21%
Personnel/Occupancy 41%
Outsourcing/Third Party Services 21%
IT Spending, by Strategic Category
Run The Business 65%
Grow the Business 20%
Transform the Business 15%
IT Spend, by Technology Domain
Data Center 22%
End- User Computing 11%
IT Service Desk 7%
Data Network 9%
Voice Network 6%
Application Development 19%
Application Support 16%
IT Management 6%
IT Finance & Administration 4%
23

25. 2. Identify Opportunities & Assess Viability
For each opportunity generated:
• What's the upside?
• Is it worth the effort?
Benefits
Small Medium Large
>18 months 6-18 months <6 months
High; impacts OS,
DB, middleware
and applications
Moderate; impacts
few components of
the architecture
Low; Little more
than "moving
boxes"
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
High Moderate Low/None
Negative None Positive
Potential Benefit
- How big is the saving if the action is implemented and how
does it affect cash flow?
Time Requirement
- Can you capture the savings in this fiscal year?
Degree of IT Technical Risk
- Is there a risk that the change will undermine the ability of
your systems to deliver?
Degree of Organizational Risk
- Will your leaders ensure the changes are made? Is your
organization capable of adapting to the changes?
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?
Business Impact
- What impact will this have on the Business?
Benefits
Costs,
Time and
Risks
?
24

26. 3. Develop Strategy & Ready Change Program
Benefits / Cost Savings
Implementation
Risk/Time
Reform IT
Governance &
Demand Mgt.
$5.7m
Outsource Application
Development &
Support
$8.0m
Optimize
Infrastructure
Service Delivery
$2.0m Re-compete Data
and Voice Networks
$1.5m
Improve ILM
and Data
Note: All figures are in millions of dollars
$8.0m
Application
Portfolio
Optimization
$10.5m
Improve
Application
Delivery
Is the risk worth
the reward?
Opportunities likely
taken as natural part
of business
$1.5m
Optimize End
User Support
$6.0m
25

27. 4. Track Benefits & Plan for Lower Yield
Increase
Virtual-
ization
Smaller than Predicted
Program Benefits Realized
Mature
S/W Asset
Mgmt
Practices
Large Program Benefits Predicted
Unanticipated
Business Changes
Complex
Technical Solution
Lack of Org
Change Mgmt
Poor Estimation
(Benefit Size, Investment)
Mature
Key ITIL
Processes
Re-
negotiate
S/W
Rationalize
Applications
Deploy
Info
Lifecycle
Mgmt
26

28. Key issues
27
• What are the proven practices for
optimizing IT spending?
• What higher maturity management
practices necessary to cut cost the “right”
way?
• How can IT leaders mitigate the risks of
traditional IT cost optimization practices?

29. IT Organizations Must Yield to the Winds of
Change
28Graphic Source: EDSA, Ms. Katy Hallgren, Senor Associate

30. The New Game-Face For IT Leaders:
Transparency
• Accountability is ultimately
more important than cost
cutting
• Culture change is incidental
to change in transparency
• If you can‟t cut, you can‟t
innovate
• The frustration of
transparency creates
innovation
• Become an offensive IT
organization
29

31. A Nexus of Forces:
How Will Enterprises Pay for This?
30Gartner Research: Cloud and the Nexus of Forces: A Foundation for
Global Class Deployment http://www.gartner.com/resId=2063215

32. IT Organizations Struggle to Simultaneously
Cut and Transform
Reduce Run by
5% to 10% Per Year
Maintain Flat
IT Spend %
Operating
Budget
Achieve ~50%
Run % IT
Spend
3 Year
IT Plan
31Gartner Research: IT Metrics: Align IT Investment Levels With Strategy Using Run,
Grow, Transform and Beyond http://www.gartner.com/resId=1961518

33. IT Management Costs Will Focus on Convergence of IT
Services Portfolios, External IT Services and Chargeback Rates
Overall Goals for Most IT Organizations
• Sustain Shared IT Services
• Prepare for Cloud Computing
• Prepare for the Next Recession
• Transparency
• Business Value
• Cost
Optimization
• Competitiveness
• Legitimacy
• Economic Value
• Demand Mgmt.
• Investment ROI
IT
Spending
Project-Based
Consulting
IT
Outsourcing
BPO
Cloud Services
Contract
Labor
IT Price
List IT Service
Catalog IT Service
Portfolio
Market
PricingTiered Flat
RatesIT Domain
Cost
AllocationHigh-Level
Allocation
32
Gartner Research: IT Metrics: New Economic Rules of IT Spending and
Staffing Metrics http://www.gartner.com/resId=1795816

34. Perspectives: Why Shared IT Services
Succeeds or Fails
Why It‟s Successful
• Roadmap for Change
• Communication Plan
• Highest Level Support
• IT Financial Management
• Creation of IT Service
Catalogs
• External Benchmarking
• Integration of IT
Management Process Silos
• Acceptance of External
Sourcing Options
Why It Fails
• Funding Model Does Not
Change
• Chargeback is Too Basic
• No Policies on Use of
Shared Service Center and
Exception Allowances
• Technical Staff Repurposed
to IT Business
Management Roles
• Strategic Objectives
Devoid of Shared Services
• No Relationship Managers
33

35. Polling Question #3
Question: What is the biggest risk from bad or
misguided cost optimization efforts?
A. IT spending will increase due to centralization
B. Service levels for mission critical systems will be hurt
C. Decentralized IT spending will increase
D. Cutting will continue in the following years
E. IT management costs will increase
34

36. Risk: Centralization of IT Could Increase IT
Spending in the Long Term (Case Studies)
Many Smaller Business Units Cannot Afford the Cost of Central IT Services and Standards.
23,520
11,428
Unix Cost
per OS
Instance
Wintel Cost
per Server
Shared IT Services Business Unit
•$500M Govt. Education
•Mandated Shared Services
•Decision to Standardize
on Unix Services
•BU IT Spending 400%
of Industry Benchmark
2,500
1,500SAP Cost
per
Named
User
Tier 2 ERP
Systems
Cost per User
Shared IT Services Business Unit
• $3B Professional Services
• Private Co. Goal of Global
Standards; Abandoned When Public
• Investment Payback Period
Changed From 7 to 3 Years
• IT Spending Easily Cut by 25%
After Abandoning Standards
35Gartner Research: IT Metrics: New Economic Rules of IT Spending and
Staffing Metrics http://www.gartner.com/resId=1795816

37. Risk: Cost Benefits From Cloud Computing
Could Be Offset by Higher Consumption
Cost per Unit Market Forecast
2001 2011
2001-2011
10-Year
CAGR
Outsourcing
Segment
2010-2015
5-Year
CAGR
Wintel Server 14,800 11,428 -2.6%
Data Center 3.1%Unix Server 67,600 44,688 -4.1%
Installed MIPS 17,500 5,575 -10.8%
Client/Peripheral 1,580 1,039 -4.1% Desktop 3.0%
HD Contact 18.46 19.39 0.5% Help Desk 4.1%
LAN Port 231 111 -7.1% Network 4.7%
• Symptom: Declining Unit Costs and Increasing Vendor Revenue
• Enterprises Consume, Buy and Manage Resources Inefficiently
When They Become Dramatically Cheaper
36Gartner Research: IT Metrics: New Economic Rules of IT Spending and
Staffing Metrics http://www.gartner.com/resId=1795816

38. The Cost of IT Cost Transparency & Running IT
Like a Business: Office of the CIO Staffing (%)
• 13% of IT staff are
OCIO staff.
• Median number of
CIOs, CTOs and COOs
is 1.0.
• OCIO excludes IT
staffing in PMO, apps or
infrastructure areas.
• Many roles may shift out
of OCIO to PMO,
corporate mgmt., lines
of business or
elsewhere in IT.
• By 2015, enterprises with long-term IT cost transparency initiatives will
increase the size of the CIO team by 25% and cut IT costs by 25%.
• IT consolidation and shared services fail long term, due to lack of
transparency.
5
6
6
7
7
7
7
7
8
8
9
10
13
Strategic planning
Governance
Change mgmt.
Human resources
Procurement/vendor mgmt.
Emerging tech. group
Financial mgmt.
Relationship mgmt.
Business process mgmt.
Security and risk mgmt.
Marketing/comm.
Enterprise architecture
Project/portfolio mgmt.
Source: Gartner, 2010; n=123 worldwide
enterprises; multiple vertical industries, multiple
responses allowed; total =100%
Assumptions
Worldwide
Gartner Research: IT Metrics: Office of the CIO Staffing Report, 2010
http://www.gartner.com/resId=1444614
37

39. Gartner's IT Budget Tool
Webinar Attendee Invitation
1. Complete the survey on your IT spending and staffing budgets.
2. Receive Your IT Metrics Comparison Report vs. Industry IT metrics.
3. Review and Discuss your IT metrics vs. the industry in the context of your
key initiatives.
I. Review and Discuss Total IT Spending figures
I. Above, below or on-par with average to be average
II. Level Set
I. Review and discuss accounting-based and asset-based distributions
III. Business Aligned Key Initiative Discussion
I. Review and discuss strategic-based distributions in the context of biggest drivers and
change agents impacting IT spending
IV. IT Cost Optimization Discussion
I. Review IT technology based distributions and target those technology environments with
the largest gap vs. average to uncover opportunities
V. IT Staffing Discussion
I. Review staffing metrics within the context of IT sourcing strategy to address IT staff right
sizing and IT skills assessments to support future state business objectives.
Don’t miss out on communicating IT performance and
business value as part of your budgeting process!

40. Wrap-Up and Recommendations
 Improve relevant IT financial transparency elements before you need
them.
 Use IT financial transparency as a cultural change agent for IT staff
and business stakeholders.
 Use benchmarking for big changes in the enterprise; use
measurement to sustain the big changes.
 If you didn‟t or don‟t like the way you have to cut costs now, then use
IT service portfolios and catalogs to do it the right way next time.
 Improving or implementing one IT financial transparency element is
tactical; changing three is “strategic.”
 Run IT like a business means improvement in IT financial
management and performance management processes and the
attitude of a vendor.
39

41. Related Gartner Research
 IT Cost Optimization Should Be an Ongoing Discipline
Jim McGittigan, Sanil Solanki (G00247911)
 Run IT as a Business Using Six Pillars of Effective IT Financial
Transparency
Jim McGittigan (G00238696)
 IT Metrics: IT Cost Optimization: Vertical Industry Perspectives
Kurt Potter Barbara Gomolski (G00232994)
 During the Euro Crisis, Fight IT Cost Optimization Fatigue With These
Saving Strategies
Kurt Potter (G00229672)
 IT Cost Optimization Round 2: Strategic Shifts and Doing Less With Less
Kurt Potter (G00205937)
 IT Metrics: New Economic Rules of IT Spending and Staffing Metrics
Kurt Potter (G00217561)
40

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