Optimizing businesses and operational processes are organizational challenges that companies deal with daily. Especially when undergoing a business transformation process, managers must resort to cost-cutting initiatives to deal with the business pressure caused by IT spending.
However, by implementing short-term cost reduction measures without a complex business strategy and technology roadmap, such cuts and restructured processes can in fact lead to higher IT costs in the long run. Another challenge faced by decision-makers is the short-term applicability of the measures, as many are not thoroughly put in place and become ignored with time.
Which are the main large cost drivers in a company?
Apart from usual investments and small costs that are a part of any business, some organizational activities and needs are generating large costs that can add up and decrease feasibility. They often require rapid changes and shifts, not only in the financial department but also in other sectors such as deploying more manpower and prioritization.
The main large cost drivers are:
- Unpredictable business and IT requirements such as fluctuating economic cycles, sector, and industry conditions
- Potential business exit or sale
- Short-term opportunities or projects that are incompatible with long-term business direction
- Rapid new business or growth opportunities that require frequent IT changes and expensive scaling
When it comes to strategizing to reduce costs and organizational silos, a long-term perspective is important. Rather than opting for short-term cost reduction that mostly means eliminating small expenses like unused licenses, unnecessary applications, and process bottlenecks, identifying the true disruption sources can be more effective.
How to turn your cost reduction initiatives into a strategic IT cost optimization plan?
Companies that have changed their goals towards long-term solutions for their business goals over time are beginning to see the benefits of such initiatives. Therefore, you should consider analyzing your short-term cost reduction processes and begin implementing a strategic and tailored solution that will benefit your organization more over time.
An IT cost optimization strategy is a continuous improvement measure for sustainable business benefits. As short-term solutions decrease specific costs in a shorter period, there are mostly one-size-fits-all solutions that can easily be optimized but does not deliver scalable results over time.
On the other hand, strategic IT cost optimization means investing in a customized solution that is tailored to the needs of the business and maintains an appropriate balance between achieving savings targets and supporting necessary innovations and process improvements that make the business future-proof.
The Pyramid of strategic cost optimization for business transformation
An organization can redesign its operations to optimize results and costs and move from short-term to long term and strategic planning. By doing so, the four levels of strategic optimization are intertwining and, if implemented gradually, can ensure business transformation. These are:
1. Repurpose your business expenses
Companies tend to begin by opting for short-term money savings that mostly include cutting off small costs. Although cash savings are important, small savings will almost never make a long-term difference. On the other hand, repurposing those amounts for other objectives that have been priorly prioritized, will slowly improve the overall spending profile of the organization.
2. Optimize to increase efficiency
Whereas cost reductions and repurposing can bring improvement, the emphasis should be on removing surplus while improving the operational performance of already existing frameworks. You should aim fot a tailored solution that is specific to your industry and business goals Speed to market, product quality and decreased workload have become crucial dor competitive businesses. Such indicators can show the real degree of efficiency of IT efforts throughout the organization.
3. Align your goals to business priorities
Strive for business flexibility and agility. It is essential to focus on business objectives and ensure that IT initiatives are aligned with business goals. Adequate key performance measurement metrics should be implemented, such as the speed of IT deployment and minimizing end-user transaction processing time. Expenditures should reflect the business alignment and be rapidly adapted to changes.
4. Transform your business
Focus your cost optimization efforts on achieving sustainable results that are scalable and will benefit departments company-wide. As the percentage of IT investments aimed at transforming the business increases, by repurposing costs and aligning them with priorities, the percentage spent on maintaining operations will remain constant and will decrease long-term.
In the second part of this article, we will discuss the steps to follow to achieve strategic business transformation and the benefits of IT cost optimization that companies can leverage for their competitive gain.