It's tempting to view IT optimization primarily as a mechanism for reducing IT service delivery costs, or for cutting the costs associated with IT capital projects. But IT doesn't operate by the same rules as other parts of your business.
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That’s because you can leverage IT to reduce costs throughout the enterprise. In fact, a CEO recently told me that he was willing to spend more on IT if it would help him achieve significant cost reductions in other parts of the business. For him, the point was decreasing overall costs. He didn’t care where the savings came from.
The key is striking the right balance between IT capabilities and costs to maximize business value. Think about it like this: What’s the ratio of value-delivered to IT cost? Value here should be defined as a combination of increasing revenues, decreasing (overall) costs, reducing business risk and building new business capabilities. It may be helpful to consider the answer in terms of IT investment and spending in four categories: growth, innovation, maintenance and productivity. The percentage of your IT dollars allocated to each of these categories may vary based on the economy or other external factors (e.g., competitive positioning), but maintaining an appropriately balanced IT investment portfolio is key to long-term business success.
A rational approach to
will vary significantly by industry, sector and company specifics. Some manufacturers, for example, may not rely heavily on technology outside of logistics – for them, it may make sense to optimize IT with overall cost minimization in mind. On the other end of the spectrum, in industries where innovation is the name of the game (pharma, technology – take your pick), technology is clearly a key driver of business value. And that calls for a different approach to thinking about IT optimization. As you evaluate your IT investment and spending plans, use the following questions to help guide your efforts:
How does IT support your company’s value proposition? Are you spending the majority of your IT dollars accordingly?
In this challenging economy, am I allocating enough IT funds to build the capabilities we’ll need during the coming rebound?
Are all current IT capital projects being effectively managed and resourced to control overall costs and minimize delivery risks?
Are there opportunities to reduce IT operating costs in a manner which doesn’t impact overall business performance?
Whether your goal is to reduce total dollars spent (SG&A and IT), or to maximize “bang for the buck,” a balanced approach to IT optimization can be a great means of getting there..