How CIOs Can Optimize IT Costs to Fund Digital Transformation

It’s 2018, and based on all the hype about digital transformation since 2012, you’d think we’d all be living in a digital utopia by now. But for many organizations, the present looks more like the past than the future. 

A recent survey of 3,958 IT leaders around the world by Harvey Nash and KPMG revealed that only 32% of organizations have an enterprise-wide digital strategy. Notably, the survey found that most digital strategies are still in their infancy, often nothing more than surface-level initiatives. And 78% of CIOs believe their digital strategy is only moderately effective or worse.

Similarly, a paper from IT service provider Logicalis echoes the sentiments of many executives: that progress is limited, that IT is still busy keeping the lights on, and significant barriers to change still exist. Of the 890 CIOs surveyed, only 5% saw their organizations as digital innovators while 25% of respondents categorized their organizations as laggards. 

What’s holding IT leaders back? 

It’s not a lack of resources, though that’s an oft-cited issue. After all, Gartner forecasted worldwide IT spending to grow by 6.2% in 2018 to $3.7 trillion. Rather, the real culprit here is the misallocation of resources—IT is spending too much of its budget keeping the lights on instead of supporting growth and innovation in the business. 

What results is a toxic environment that’s low on integration, speed, and skills, inundated with technical debt, inefficient processes, and high costs. In turn, this environment creates a gap of systems, skills, readiness, and speed between a business’s digital future and its current state. 

This gap—this digital transformation chasm—is what’s really holding back IT leaders. For many organizations, then, optimizing costs to fund digital transformation is the only way to realize their digital visions. 

The good news is that even small-scale IT cost reduction strategies can have outsized effects. In my experience, most organizations should see reductions in costs between 15% to 50%. The key here is to focus on the three areas with the biggest impact on cost: 

Strategy

How aligned is the IT organization with the business? Review what the business needs and how IT can support it, but be careful not to get caught up with a particular technology. Focus instead on the organizational competencies that can enable the business to achieve its goals. Identifying the right initiatives and shifting spend towards growth will do much to eliminate wasteful spending within the organization. 

Ask:

• Is IT engaged with the business leadership in driving tech-related decisions?

• Are there opportunities to consolidate technology across business units or locations?

• Are governance processes capable of optimizing investment allocation?

Execution

Does IT have the right capabilities to support the business? Thoroughly assess your organization’s operations including service delivery processes, infrastructure, people, and contracts against the business’s goals. Focus on eliminating technical debt and inefficient processes. Cut out any technology, processes, or roles that IT does not contribute to the needs of the business and you would have reduced your overhead costs significantly. 

Ask: 

• Is our technology footprint suitable in terms of scalability, age, cost, capability, and security?

• Can cloud computing enable cost savings and improved ROI?

• How well are employee skills and capabilities, and the organization itself, meeting business needs?

Financials

Is IT allocating resources to the right investments? Your budget should reflect your IT strategy and priorities and should act as a roadmap towards achieving your digital transformation goals. Initiatives that will increase revenue, reduce cost, and mitigate risk for the organization should be prioritized.

Ask: 

• Where can work be automated and repetitive labor eliminated?

• Where do we have redundant IT from acquisitions that can be eliminated?

• How do existing IT contracts compare to market rates?

To wrap, the pace of technological change will only accelerate in the coming years, and companies who fail to free themselves from the anchor that is legacy IT will fall behind, lose market share, and become obsolete. It is still not too late to cross the digital transformation chasm. But IT leaders will need to work quickly to reallocate resources to the right projects, people, and technologies to drive business results and performance.