Sanjiv Sachdev, Director, Strategic Business Value Consulting at Serviceware, looks at how right-sizing the IT estate is pivotal to business growth in a time of disruption.
Urgent fire-fighting and short-term plans have consumed organizations for some time now. But business leaders are beginning to turn a corner on the road to recovery. As the world moves on from crisis mode, businesses have their eyes firmly set on growth and the tools and technology needed to succeed and transform.
Amidst a sustained period of disruption, businesses would be forgiven for getting caught up in the desire to accelerate digital initiatives. It is all too easy to become engrossed in the vast amount of shiny new technologies on offer. But – not so fast! To be able to invest in this new technology-driven future, businesses must free up budget in the short-term whilst also optimizing investments for the long-term.
But despite a focus on the road ahead, each and every investment still faces increased scrutiny from those sitting around the c-suite table. For the services sector, in particular, a steep rise in operating expenses has left the CFO’s purse strings tighter than ever, especially due to recent labor shortages and fuel disruption.
The soaring cost of gas and electricity bills has led to many now focusing on cost management and optimization. Combined with the sudden reality of those pandemic-driven investments, this puts the CFO in a tight spot. They know that there must be an initial outlay to grow, but where is this budget going to come from?
The answer lies in cost transparency and understanding where significant cost savings can be made, rather than looking to lose valuable experienced resources. But it’s not about downsizing; it’s more about ensuring resources are being utilized effectively and efficiently across an organization which will subsequently help fuel business growth.
For example, there is no point in overspending on software licenses if they are not being used by employees or underspending and getting hit by a software audit and penalty fees. Instead, it makes better business sense to invest in tools that drive value. It’s also important to consider not overstretching resources to the point of snapping, as this can have an adverse effect on a business, both in the short-term and long-term.
Right-size, don’t down-size
A better approach is right-sizing. Whilst down-sizing is about reduction, in contrast, right-sizing is about being more strategic, streamlining operations and taking an end-to-end view across an entire IT portfolio. This may mean minimizing costs in one area but investing it elsewhere to position the organization for future challenges and opportunities. Most importantly, it is about achieving growth rather than scaling down. According to Bain & Company, companies that ‘right-size’ their workloads can cut costs by as much as 30% to 60%.
However, achieving such figures requires even greater collaboration across departments and for CIOs and CFOs to work closely together to review their current IT estate. Dan Garvey, vice president in the Gartner Finance practice, comments, “CFOs are trying to figure out the digital landscape and ways to identify and execute cost savings opportunities in order to allocate more funding to digital initiatives”.
It can often be considered a challenge for the CIO to find the right balance between operations and innovation, especially as they are often expected to lead product innovation, reduce spending, and accelerate global expansion. In this world, CIOs must be smart about how their departments are purchasing and using technology.
The problem is that it isn’t necessarily straightforward to right-size without having accurate analytics to guide both the CIO and CFO. However, the c-suite needs to invest in the company they envisage for the future, rather than the one that exists now. Inevitably, this requires forethought and clear, transparent planning.
Visibility is key to determining value
IDC predicts that digital transformation spending will grow to more than 53% of all information and communication tech investment by 2023 and as a result, is now accounting for a substantial percentage of budgets. Therefore it’s key to understand usage, performance, and cost levers in real-time to make the right investments and vendor choices as part of this futureproofing, transformative strategy.
Traditionally, most companies would use tools such as Excel as a way of managing their IT costs, but due to the manual nature of spreadsheets, these pose a risk to data integrity and, therefore, should be avoided. Furthermore, spreadsheets carry the risk of human mistakes, but they are also impossible to keep up to date at all times. Luckily, there are specialized tools for IT Financial Management (ITFM), which can simplify and automate the data-gathering process for businesses.
Such tools enable organizations of all sizes to gather vital, real-time operational, project and vendor cost data. This also allows the CFO and CIO to develop fact-based scenario planning and effective decision-making – from right-sizing to investing in the future. Cost-data alone, however, is not enough to right-size effectively.
Utilization data is a key mechanism for right-sizing. Whilst insights into the value derived from such investments is also important, IT Financial Management (ITFM) software can provide greater visibility and understanding of all IT service processes, including how IT is or isn’t being used and by who. Through greater transparency, these tools can ensure that innovation and digital strategies take center stage in optimizing services and paving the way for a successful business future.
The time for right-sizing is right now
In this next phase of growth, now is the time for businesses to invest wisely in their digital capabilities so that they perform and build resilience to survive the ‘now’ and pave the way for the future. Investment in technologies such as cloud-based services is crucial to allow businesses to reduce internal costs and optimize business growth by offering a much more scalable and reliable IT infrastructure specifically designed to streamline performance and support development and expansion. ITFM is the software of choice for financial planning and evaluation of IT. It not only helps businesses to measure Infrastructure as a Service (IaaS) sourcing progress but also manage ongoing cloud spend.
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Right-sizing and optimizing budget spend to fund reinvestment in these innovations will be paramount to success, but this will only be possible with transparency and visibility surrounding IT. Those who have these insights will be able to look to the future, taking strides ahead of the competition.