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Most IT departments are under pressure to reduce costs. However, the COVID-19 pandemic made it clear that failing to invest in the right technologies and tools can be costly. Businesses overwhelmed by the sudden demand for certain types of products had to scale up. Other companies had to reduce IT infrastructure costs and other expenses because their revenue fell off a cliff.
"The pandemic has moved the discussion away from cost reduction to cost optimization," said Mike Kelly, CIO at Red Hat. "CIOs and CTOs don't want to be accused of not spending enough. They want to make sure that what they are spending is being used as effectively as possible."
Gartner expects worldwide IT spending to increase by 6.2% in 2021. Of all the major categories -- data center systems, enterprise software, devices, IT services and communications services -- enterprise software is expected to grow the fastest at 8.8%.
Forrester noted in a May 2020 report that CIOs were facing unprecedented pressure on how to reduce IT infrastructure costs and recommended getting creative when it comes to negotiating contracts and keeping product maintenance current. In tough times, product maintenance is typically viewed as "nice to have" until the product's degrading performance or security vulnerability suggests otherwise.
The move to the cloud also accelerated in 2020 as businesses attempted to enable greater levels of agility and reduced costs. As part of that, SaaS investments increased at the expense of the on-premises equivalents.
So, how exactly are CIOs able to reduce IT infrastructure costs within their organizations in order to keep up with today's market?
Let growth determine how you cut costs
Forrester's report makes some specific recommendations about IT investments and cost cutting based on whether the company is surviving, adapting or growing. Not surprisingly, companies in survival mode are advised to make the deepest cuts, and companies in growth mode are encouraged to invest.
The companies in adaptive mode should also reduce IT infrastructure costs, albeit not as dramatically as surviving companies. According to Forrester, if their revenues are projected to fall by 10% to 30%, then CIOs could expect to be asked to reduce their IT budgets by 5% to 15%.
Of course, it's not ideal to make cost reductions equally across the board. Instead, IT organizations should prioritize their IT cost reductions like they prioritize their IT investments -- to advance the company's business goals. And, as 2020 demonstrated, organizations should also be prepared to adjust their budgets quickly as situations change.
For example, cloud computing company Nutanix uses a portfolio management approach to cost optimization, which evaluates how the budget would be spent given different market conditions, the state of business conditions and the state of technological advancements. That way, when change occurs, it's clear where investment and divestment should lie.
"I'm looking to take money from areas of my budget that support things like work in offices, real estate and workforce travel and putting money into infrastructures, services and tooling that allow a remote worker to be productive, to have secure access," said Nutanix CIO Wendy Pfeiffer.
She also extended IT support hours since remote workers are spread out over more locations than when they were working in offices.
Manage IT staffing costs
While some IT jobs were lost during the pandemic, finding a new position has become relatively easy for most IT workers because of the current talent shortage. IT leaders know talent is scarce, so they're thinking carefully before eliminating positions. However, at any point in time, their organizations need the right mix of skills on hand, which is a moving target. Since they can't simply replace existing staff with new staff members, they must make calculated decisions about upskilling and hiring.
Traditionally, IT departments hired specialists. Now, broader positions are emerging, such as full stack engineers and site reliability engineers. As more tasks are automated, companies are moving further into the cloud, and IT tooling is improving.
Meanwhile, IT service providers, managed service providers and consulting firms have been supplementing in-house resources, and they're one of the reasons many organizations were able to navigate the pandemic as gracefully as they did.
Get a grip on cloud costs
The adoption of cloud technologies is the elephant in the room, especially since cloud represents so many things these days. Businesses are housing more data in the cloud; using cloud compute for analytics, machine learning and AI; adopting SaaS; and migrating their in-house applications to SaaS.
"With digital business initiatives, like AI and automation, requiring even more data processing [than big data analytics], storage should be at the forefront of budget discussions. A recent Enterprise Strategy Group report showed that 64% of IT decision-makers using AI [and machine learning] expect to increase spending in 2021," said Paul Speciale, chief product officer at Scality, a multi-cloud data storage vendor. "As businesses are aware, it's common to see multiple petabytes of diverse file data needing to be stored and retained for the long term."
A common mistake is to try to replicate what already exists on premises in the cloud rather than considering how the architecture should evolve.
"If a business simply moves its on-premises servers to the cloud in an IaaS or single-tenant fashion, they are only swapping gear from one vendor for another," said Jim Plourde, senior vice president of cloud services at Infor. "They may see gains in flexibility and automation, but to reap the full benefit of the cloud, businesses need to move into a multi-tenant SaaS solution, where they have no gear to worry about."
Perhaps the biggest mistake of all is failing to have a cloud strategy because, without one, the business impact is lower and the costs are potentially higher.
"A popular choice is a cloud-first, cloud-native approach that prioritizes investments based on impact," said Graeme Thompson, CIO at data management software provider Informatica. "Typically, organizations overprovision and won't do the work to schedule capacity based on when it's really needed, which is one of the drivers for cloud [and] IaaS in the first place. This starts with reporting on capacity versus usage and then moves to automated scheduling of downtime so that you don't pay the hourly rate 24/7."
Thompson also recommended consolidating the number of vendors to reduce IT costs and manage them more effectively. And another place to save is consolidating software licenses into a single enterprise account versus multiple departmental or group licenses.
Check in on how your cost-cutting measures are working
Nutanix's Pfeiffer considers continuous measurement as essential. That way, when a change is made, it's easier to see the results of those changes.
Some of the metrics she uses include mean time to repair, how well a product is received and "first time," which means getting something right the first time without the need for rework.
"We believe that ensuring services to the satisfaction of our employees directly impacts employee productivity and happiness," Pfeiffer said. "We don't base that on some philosophy; we base that on the data we collect."
Many of today's applications and tools are collecting, generating and storing data to provide an analytics capability. Although the analytics are designed for the application or tool, increasingly, the data may be used for business intelligence purposes to improve processes, operations and customer satisfaction.
Enterprise Strategy Group (ESG) is a division of TechTarget.
Evaluating IT budget and spending has become a top priority for organization in every industry. Learn more about how CIOs and other IT leaders can effectively create a budget plan, yield immediate cost savings, reduce IT infrastructure costs and ultimately achieve long-term IT cost optimization.