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IT cost discipline is back

In recent years of steady growth, IT has increased in size and influence in many companies. Once ridiculed as a pure "commodity", it has evolved into an essential component in the digitization of business. Considerable investments in digitization and thus in IT were essential for this. But whenever the order books shrink sharply, the pressure on the IT budget increases. According to surveys, almost all companies have already taken immediate action. By mid-May 2020 alone, around 20 to 30 percent of all digital projects in Germany had been put on hold.

Nevertheless: Despite the increased cost pressure, the Corona crisis underlines how indispensable digital tools and jobs are today - in many places more than less investments in digital technologies are necessary. Some companies have even used the Corona period proactively to digitize the customer interface with the development of portal solutions or to finally increase the number of mobile workstations. They understood and used the crisis as an opportunity.

  1. The "delimitation of work" takes place, but only on a small scale. Most people work like they always do.

  2. Many skeptical executives have revised their minds during the crisis. However, they still have to work on their leadership behavior.

  3. The care situation at home put a lot of strain on some employees.

  4. Lessons from Corona: The distrust of the home office has decreased. In addition, companies want to reduce their business trips.

  5. Laptops, VPN access, video communication - the technical equipment that had become indispensable in the Corona crisis was mostly already in place.

Keeping IT costs intelligently "under control"

IT cost reductions in companies should not prevent IT departments from continuing to add value to their organization. The following applies:

  • Cost reductions must be weighed against the value IT adds;

  • Downsizing in the IT department must not impair the quality of critical IT services;

  • Necessary investments must be distinguished from unnecessary expenses. There must be no wave of investments;

  • Standardization and restrictions on the level of performance on the IT side must not jeopardize the operational business;

  • IT cost reductions must not lead to higher process costs on the user side. Going back to the "typewriter" isn't really an option.

When discussing IT costs, it must always be taken into account that the business areas, as consumers and drivers, make at least as important a contribution to IT costs as IT. It should also be clear that the absolute amount of IT cost design leeway is limited, for example due to the activation of major projects in the past. IT depreciation as a "debt" of the past can only be repaid with greater effort from the books and thus from the income statement.

IT cost control lever for transformation & change

In times of digital transformation, IT projects have sprung up like mushrooms. Budget and costs played a subordinate role compared to speed. With tighter budgets, IT now has to make a contribution to cost savings and scrutinize its own use of resources. At the same time, it must help the company invest in the right IT initiatives. These should help to keep costs in the core business permanently low and to increase competitiveness in the long term. Therefore, these are the main IT cost control levers on the transformation and change side:

  1. Healthy prioritization in investment and project portfolio management without building up future digital debts. It is particularly important here to expand resource management in order to avoid frictional losses and reduce set-up costs.

  2. Service provider consolidation: In many companies there is now a high growth of IT service providers and freelancers. Here it is important to systematically operate "housekeeping" also using IT purchasing.

  3. In-sourcing: For a long time, the IT market was characterized by a lack of capacity and skills. In the current situation there are again more opportunities to recruit good IT employees for your own company and thus to save "more expensive" external parties.

  4. Near sourcing: Establish near-shore opportunities for software development. Many companies are already taking advantage of the opportunities to access appropriate IT resources within Europe. The advantage is that these locations can be reached in a few hours compared to Asia or India and now have a high level of technical competence.

  5. Processes: In the context of agile IT transformation, many companies lack standards. Starting with project management through to requirements and test management, the wheel is often reinvented over and over again. Here, reuse in the form of process models contributes to increasing efficiency.

With the help of the levers above, it is possible to walk the tightrope between cost savings on the one hand and the implementation of the necessary efficiency measures for the business.

IT cost control lever on the operating side

IT operations are, so to speak, the classic area in which to use the red pencil for IT cost savings. Here, too, one must act with caution. On the one hand, IT operations ensure the availability of workplace equipment and systems. Hard cuts often require a reduction in performance at the expense of the business.

On the other hand, technological innovations in the infrastructure sector in the direction of hyper-convergent technologies lead to the realization of economies of scale and thus to design options in IT costs. The topic of sourcing and the cloud must also be dealt with at this point. Cloud operation is not always the more cost-effective one - there is certainly a reason that both Amazon and Microsoft generate significant sales and profits through their cloud offerings.

These are the main IT cost control levers on the operating side:

  1. Workplace: Many of the workplace equipment was upgraded and expanded as part of the corona pandemic. Many workplaces in the company often stand around uselessly for this. This situation needs to be questioned in terms of quantity and costs there to be reduced accordingly.

  2. Licenses / contracts: Every year license costs for software devour larger parts of the IT budget. But is reducing the number of licenses a best practice to maximize the IT budget? Yes and no, because this cost control lever is tried one after another and is subject to permanent optimization. It is much better to check whether one or the other software can be replaced by individualized order development in order to save permanent license costs.

  3. Data center infrastructure: No matter how you twist or turn it: In the end, computing power and memory are required. If your own data center operation is still planned, a lot of manpower can be saved in administration using so-called software-defined data centers. Further savings always depend somewhat on the investment cycle, as the hardware must be replaced every three to four years.

  4. Cloud infrastructure: It is now common practice in many companies to obtain computing and storage power from the cloud. But savings can also be made here. For example, development and acceptance test environments are not needed at night and rarely on weekends. Clever planning can save one or two euros even in cloud operation.

  5. IT automation: The use of comprehensive tools in infrastructure and application operations often enables a greater degree of automation and transparency. RPA solutions are also finding their way into IT operations here. With the help of bots, the previous cumbersome ITIL processes can be automated beyond the use of service management tools.

Agile IT cost management in five steps

Companies are faced with the challenge of optimally balancing IT costs, achieving quick and sustainable results and at the same time not building up any "debts" for the future. This requires a systematic approach which, however, quickly produces results ("sprint logic"). This consists of five steps:

  1. Consideration of the abstract term "IT costs": The structures for the deepening are derived from the classic breakdown into IT personnel costs, IT material costs and depreciation. Detailing continues to include more mechanistic topics, such as the evaluation of contract situations. However, it also includes data collection, for example to make the deployment of personnel in the IT area along processes transparent and thus "benchmarkable".

  2. Assessment of the possibilities: The processing of the long list of classic IT cost reduction measures also includes a consideration of the change portfolio on the basis of objective information. Business units are definitely involved in this step.

  3. Evaluation of the measures: Once the list of IT cost reduction measures and digital investments is created, the measures are assessed. This takes place in a workshop setting with IT and the business departments. This then also leads to new ideas for reducing costs.

  4. Determination of costs and implementation time: The measures are often associated with IT investments. Therefore, these are to be determined and roughly estimated with regard to their costs and their implementation time. This then also enables the prioritization of measures and the creation of a selection list with immediate IT cost reduction measures ("quick wins") and longer-term effectiveness.

  5. Decision on the implementation and phasing of the measures in a benefit controlling.

These five steps are run through iteratively and repetitively in "sprints" in parallel for the IT cost content "transformation" and "operation" for the above topics. This ensures that results can be worked out quickly. The result is also a coordinated portfolio of cost reduction measures,
On the one hand, this ensures that costs can be reduced to the extent envisaged while maintaining competitiveness in the future. (mb)