Bending the IT Op-Ex Cost Curve Through IT Simplification
By applying a holistic approach to reduce IT complexity and ward off inefficient operations, CIOs can greatly reduce their annual operational expenditures and create self-funding mechanisms to enable digital transformation.
Today’s CIOs grapple with a multitude of inherited challenges. From an inside-out IT portfolio perspective, these obstacles include:
A massive and unstructured expanse of IT applications.
Heterogeneous and expensive technology architectures.
Legacy and duplicate infrastructure.
Inefficient processes and skills shortages.
Overly complex workflows.
As such, IT complexity is a multidimensional problem that cannot be solved by selectively addressing discrete elements. Architecture and systems management tools impact infrastructure and application choices. Legacy modernization investments should be considered alongside new digital capabilities and partnering decisions. Automation should be applied synergistically across both applications and infrastructure. And processes, operating models and governance work best when they are interlocking and facilitate an agile, empowered and innovative work environment.
Achieving long-lasting efficiency and value benefits requires the orchestration of diverse elements of the IT environment to create a set of cohesive, well-managed services and business-oriented outcomes.
A Proven IT Simplification Framework
CIOs can simplify and refine their enterprise IT landscape through a structured, holistic and well-governed strategy that can successfully bend the operating expense (Op-Ex) curve and pave the way for a systematic digital journey (see Figure 1). We find the following four-step approach to be an excellent starting point. It focuses sequentially on enterprise IT inventory and strategy; process, tools and operating model optimization; application infrastructure optimization and cloud migration; and IT operations automation.
Enterprise IT inventory and strategy: Bending the Op-Ex cost curve begins with taking a hard look at what your organization currently spends on common architecture and tools across business entities — not only capturing direct payments to external vendors, but also overhead costs such as internal staff hours and effort. Start with these key questions:
Which systems are under- and over-utilized; which have the highest outage rates?
Which require significant work-arounds to accommodate new technology and re-provisioning?
Which receive the highest number of user and admin complaints?
Process, tools and operating model optimization: During this phase, your team will review the process maturity of your plan-build-run organization compared with industry standards and best practices such as IT4IT, PMBOK, CMMI and ITIL. Adopting the DevOps discipline of continuous integration/continuous delivery (CI/CD) with an integrated platform strategy can significantly reduce both effort and time-to-market.
IT operations automation: Addressing trouble tickets and backlogs can provide a unique opportunity for understanding IT issues, as well as identifying low-hanging fruit for cost reduction through automation. Our approach to trouble tickets is to categorize them as technical, operational, functional or knowledge debt, and as either avoidable or unavoidable.
Organizations can’t remain competitive or relevant without rationalizing their complex, inefficient and expensive IT systems into a simpler, high-performing and cost-efficient IT portfolio. To achieve this, the IT portfolio must be aligned with the organization’s business objectives and must be flexible enough to address ever-changing business demands. This means that legacy applications, traditional operating models and low performing assets and processes must be quickly assessed for future fit.
To begin, companies should complete an objective, deep-dive analysis of the business and technical costs and contribution of each application in the IT portfolio. Based on the relative value each application provides, the organization can decide to retire, retain, replace or refactor.
Once a portfolio is constructed that can deliver/act faster and provide higher business throughput, organizations need to think of cloud-based solutions to unlock the potential of digital business opportunities. By performing a cloud-readiness assessment, your organization will be able to unearth the potential cost advantages compared with owning and managing all applications portfolios on premises. In addition, it can access predictive analytics, auto-scaling options, add-ons that support certain business requirements, and integration of technologies for better controls and monitoring.
Tangible, Real-Life Benefits
Implementing an IT simplification framework can provide dramatic, long-term savings. A major U.S. healthcare company whose Op-Ex had been growing by almost 13% year-over-year recently applied this approach to identify $48.8 million of annual savings on a $232 million base — a 21% annual reduction in Op-Ex.
While business leaders recognize the need to leverage digital technologies to transform their business and keep pace with rivals, they also must balance this pursuit with other critical investment priorities, such as R&D, sales and marketing, and customer support. The primary benefit of completing a global IT simplification framework is that Op-Ex savings can be substantial, and typically, any savings achieved in operating efficiencies can be retained within the IT organization and applied to strategic projects.
To achieve substantial Op-Ex savings, evaluate your IT environment holistically, anticipate touchpoints and dependencies, and identify and prioritize opportunities to simplify, modernize and secure your organizations’ digital backbone. Create a proven framework for identifying and remediating portfolio inefficiencies.
A best-practices framework can help your organization to efficiently and effectively do the following:
Inventory your “as is” IT environment and develop your desired “to be” enterprise IT strategy and roadmap.
Identify opportunities to reduce licensing fees, and move IT processes from task-based to managed services or outcome-based models.
Analyze the trouble-ticket repository and apply debt analytics to identify opportunities for effort elimination and work automation.
Analyze application portfolio utilization, cost and contribution, and identify candidates to retain, replace, refactor or retire. Look for opportunities to leverage cloud-based technologies to reduce costs and increase operational flexibility and scalability.
Adopt a continuous development/integration mindset leveraging Agile and DevOps to accelerate time-to-market and reduce costs and rework.
While completing a holistic analysis and roadmap of your Op-Ex environment does involve an upfront investment, either by dedicating internal resources or hiring outside expertise, the investment will return results year after year. It will free up funds and resources your team can dedicate to much higher-value strategic and transformational opportunities.