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Gartner At A Glance

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John Roberts

Research VP & Distinguished Analyst

March 2016

Spend Less, Drive More Value: How Best-in-Class Organizations Do It

Does Optimizing Your IT Budget Drive You Crazy?

3

Cost Optimization Focus is Evolving

IT Cost Optimization

Drive IT cost reduction while maximizing

business value.

Business Cost Optimization

Digitalize and optimize business processes using IT.

Digital Business

Digitalize physical assets, data and business processes.

Cost Optimization in the Age of Digital Businessmeans organizations must use a mix of IT and business cost optimization for increased business performance, while preparing for Digital futures.

Key issues

• What are proven practices for optimizing IT spending?

• What higher maturity management practices are necessary to cut costs the “right” way?

• What are you going to do next to improve your IT cost optimization efforts?

6

Compare your Costs (Go to gartner.com/itbudget)

IT Spending % of Operational Expenses 4.2% 4.3%

IT Spending % of Revenue 3.2% 3.4%

IT Spending per Employee $12,710 $13,537

IT Employees % of Total Employees 5.1% 4.8%

20162015Cross Industry Averages

Run 70%

Grow 19%

Transform 11%

Contractors 19%

In-house 81%

IT Capex 27%

IT Opex 73%

Hardware 15%

Software 22%

Personnel 39%

Outsourcing 24%

Apps Dev. 17%

Apps Sup. 18%

Data Center 24%

End User 11%

Data Network 8%

Service Desk 6%

Voice Network 6%

IT Mgmt. 6%

Fin. and Admin. 4%

5

Cost optimization opportunities remain available in every area of IT

Here Are Some Of The Differences Between Average and 25th Percentile Performers

Overall IT Spend 35% difference in cost

Application Development 45% difference in cost per function point

Application Support: 46% difference in cost per function point

Mainframe 25% difference in cost per installed MIPS

Unix 33% difference in cost per OS instance

Windows 38% difference in cost per OS instance

Linux x86 35% difference in cost per OS instance

Storage 29% difference in cost per raw TB

End-User Computing 23% difference in cost per device

IT Service Desk 32% difference in cost per handled contact

Wide-Area Data Network 35% difference in cost per device

Local-Area Data Network 30% difference in cost per active port

Wide-Area Voice Network 27% difference in cost per minute

Voice Premise Technology 28% difference in cost per active extension

8

Use Gartner’s Four Level

IT Cost Optimization Framework

9

Enable Innovation and Business Restructuring

Joint Business and IT Cost Savings

IT Procurement

Cost Savings Within IT

Use Gartner's Four Levels of IT Cost Optimization Framework

• Deliver Units Differently — Evaluate changes to service delivery across major domains looking for consolidation, streamlining or selective outsourcing opportunities

• Reduce Unit Costs — Get best pricing and terms. Identify opportunities to reduce spend within existing vendor contracts and service delivery model

• Deliver Different Units — Reimagine business service delivery with technology (e.g., improve customer experience, new payment models)

• Reduce Number of Units — Seek out opportunities to eliminate/reduce application footprint (and with it, infrastructure supporting these applications) while also evaluating under-performing projects in flight

Inc

rea

sin

g B

us

ine

ss

Va

lue

Inc

rea

sin

g L

eve

l o

f E

ffo

rt

1

2

3

4

Four paths that can be taken individually or together for compounding effect

10

Take a 360-Degree View of IT Cost Optimization

1. IT Procurement

2. Cost Savings Within IT

Improve efficiency of IT processes

Get the best pricing foryour IT purchases

3. Joint Business and IT Cost Savings

Simplify business services

IT Cost Optimization

ITO360*

Business Process

Optimization

Business

Model

Optimization

Information

Delivery

Optimization

IT Costs

4.2% of

Enterprise

Costs

Value

Value

*ITO360 definition:A 360-degree approach to enterprise optimization by exploiting information technology to maximize business outcomes through increased digitalization of business processes, information delivery and business models.

19

Getting Started on Round 2 Cost Reduction

11

DemandSupply

Round 1:Doing More for Less

Round 2:Doing Less for Less

Control

IT Spending = Σ (Unit Costs of Supply x Volume of Demand)

Provide Financial Transparency

and Implement a Proactive IT Cost

Optimization Process

12

Assess Your IT Reporting TransparencyRate each item 1= never, 2= rarely, 3= sometimes, 4= often, 5= always

Pillar Current State Assessment Rating

IT budgeting Business leaders understand the major components

Multiple budget views are presented

Investment planning Sound business cases are presented

Life cycle costs are included

Project tracking includes benefits realization and harvesting

Chargeback/Showback Full costs of each IT service are reported/charged

There are defined business-based SLAs in place for all IT services

Benchmarking IT costs and SLAs are regularly compared

Price and performance differences are regularly communicated

Cost optimization IT cost optimization is an ongoing discipline

Initiatives include joint business-IT cost and value optimization

Performance metrics Key IT metrics are directly related to business metrics

Business value of each IT service is integral part of IT governance

TOTAL SCORE13

Move From Traditional IT to a Service Organization

• Supply driven

• Technology centric

• Functionally and technically silo'd

• Insulated and monopolistic

• Cost-obsessed

• Demand driven

• Internal customer centric

• Process based

• Competitive and engaged

• Service-obsessed

Optimizes Assets Service Outcomes

Attributes

Role Steward Service Partner

Cost center External service providerBehaves As

Traditional IT Service IT

14

High performers innovate to optimize IT spend

Business Restructuring

and Innovation

Joint Business and IT Cost

Savings

Cost Savings Within IT

ITProcurement

Difficu

lty

Valu

e

High performers increase IT spend effectivenessby informing business leadership of the shifts that

help fund digital businesses

Improve the Buying Process

Reduce Technical Debt

Inform the Needed Shift in IT spend

Align acquisition practices with consumption patterns to optimize software assets and fund initial

IT cost optimization efforts

Target technical debt to deliver breakthrough returns and improve IT productivity needed to

deliver faster than the competition

Change the Dialog

Reduce IT costs by analyzing unit costs andcreate the transparency to change the IT/Business

dialog from cost to value

Leading practice to optimize IT spend Gartner ITCO Framework

15

Build an Ongoing IT Cost & Value

Optimization Program

16

Quick Poll: How far advanced are your IT cost optimization initiatives?

1. 20%

2. 40%

3. 60%

4. 80%

5. 100%1. IT Procurement

2. Cost Savings Within IT

Simplify business services

Get the best pricing for your IT purchases

3. Joint Business and IT Cost Savings

Improve efficiency of IT

processes

4. ITO360 Optimization

Optimize enterprise performance

20

IT Cost Optimization Program Formulation

Establish Baseline

Identify

Opportunities

Develop Strategy

Track Benefits

• Capture all IT service delivery costs — current year and five year forecast

• Categorize by asset class — HW, SW, personnel, services,

occupancy costs, and so on

• Allocate into services — establish unit cost baseline for market and

business tests

• Analyze spend gaps against market peers

• Identify high-value opportunities for cost reduction, service

improvement, and business enablement

• Assess benefit against risk to change (as well as time, investment)

1

2

3

4

• Develop strategy and road map for most viable opportunities

• Analyze organizational change needs to manage people impact

• Create communications plan

• Create an IT cost optimization (ITCO) program office

• Monitor, measure, and report

• Identify opportunities to accelerate while managing out risk

17

Five Principles That Drive Continuous Optimization

Transparency Agility Accountability

Simplification Discipline

4

Recommendations

Be proactive when managing IT cost optimization.

Decide where you are in the cost optimization journey and outline what you will focus on next.

Recognize that opportunities for cost optimization still abound in all areas of IT.

Use best practices to optimize costs both within the IT organization and within the business.

Look beyond tactical actions for biggest savings.

Ensure there is accountability for achieving the targets that you set.

21

• Cost Optimization in the Age of Digital Business G00302499

• Toolkit: Spend Less, Drive More Value - The Gartner Approach to IT Cost Optimization G00268864

• The Ongoing Opportunity for IT Cost and Value Optimization, 3Q15 Update G00290975

• Developing a Financial Transparency Roadmap G00275821

• ITO360: Break Through IT Cost-Cutting Barriers to Optimize Business Performance G00262676

• Best Practices to Drive Cost and Value Optimization in IT Management G00267141

• Best Practices to Drive Cost and Value Optimization for Infrastructure and Operations G00268872

• Best Practices to Drive Cost and Value Optimization in Application Design and Delivery G00269211

• Best Practices to Drive Cost and Value Optimization in Application Support G00269210

• Best Practices to Drive Cost and Value Optimization in End-User Computing G00269829

• Managing Cost Optimization Primer for 2016 G00293042

Recommended Gartner Research – IT Cost Optimization

22

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