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Gartner 2013 it cost optimization strategy, best practices & risks

1. The document discusses proven practices for optimizing IT spending, including establishing baselines, identifying cost optimization opportunities, developing an optimization strategy, and tracking benefits. 2. It emphasizes that cost optimization should be an ongoing discipline rather than a one-time project, and outlines a framework for establishing an IT cost optimization program. 3. Several opportunities for cost savings are identified, such as optimizing infrastructure, application portfolio management, and improving application delivery; and factors for evaluating opportunities like potential benefits, time requirements, and risks are covered.

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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
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
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
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.
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
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?
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?
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
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
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
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
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
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
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
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
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
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
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?
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
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
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
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
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
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
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
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
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
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?
IT Organizations Must Yield to the Winds of Change 28Graphic Source: EDSA, Ms. Katy Hallgren, Senor Associate
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
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
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
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
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
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
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
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
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
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!
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
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
• Visit gartner.com/webinars – Today's presentation is available to download on the Attachment Tab of our webinar portal or will be available shortly on our webinar page – Check out the schedule of upcoming Gartner webinars (plus on- demand webinars) and don„t forget to share these resources with your colleagues • Contact your Gartner account executive with any additional questions, comments or for a complimentary copy of today's presentation Simple steps for increasing the value of today's webinar experience 42

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Gartner 2013 it cost optimization strategy, best practices & risks

  • 1.
    This presentation, includingany 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 aGlance 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, includingany 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 BudgetTool 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—Thereare 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 • Whatare 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 • Whatare 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 TheseThings 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 forCost 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 OptimizationInitiatives — 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 CanYou 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 forIT 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 forCost 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 (CostSavings 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 • Whatare 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 TraditionalIT 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 asa 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 OptimizationShould 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 EstablishBaseline 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 ByBU 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 • Whatare 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 MustYield to the Winds of Change 28Graphic Source: EDSA, Ms. Katy Hallgren, Senor Associate
  • 30.
    The New Game-FaceFor 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 ofForces: 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 Struggleto 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 CostsWill 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 SharedIT 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 ofIT 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 BenefitsFrom 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 ofIT 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 BudgetTool 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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