Cost Reduction Strategies

The need to reduce IT costs while increasing business value is ubiquitous. A multitude of options exist to reduce IT expenditures, with several overall cost reduction strategies being very traditional. Unfortunately, no single prescription works for all CIOs to reduce costs. Select the combination of cost reduction strategies that makes sense for your company and culture while molding and accomplishing the actions within your unique business environment. Manage IT reductions with the business to ensure that IT expense-cutting efforts do not adversely affect business areas, performance, or total company costs. We outlines a variety of overall cost reduction strategies to consider.

For reductions to be sustainable while improving efficiency, a company must have clear and consistent cost reduction strategies. When costs need to be cut, often the first reaction is to cut projects; however, projects add value to the business. Whereas stopping some projects in the short term may be necessary, many projects need to be completed in order to support the company's direction, growth, and competitive advantage. With clear strategies and a cost reduction focus, many companies are able to reduce IT operational expenses by an average of 10 to 30 percent while maintaining the same level of service. Of course, aggressive or out-of-the-ordinary cost reductions result in significantly higher savings.

We provides specific cost reduction tactics in various areas of IT. However, several overarching cost reduction strategies affect all areas of IT. Introduces these strategies while subsequent provide specific supporting tactics. Many of these strategies are common sense to the experienced CIO, but it is helpful to visit the basics to ensure that all areas of IT support the cost reduction strategy. Figure 1 illustrates the strategies within the major components of IT:

• Business applications
• Technical infrastructure
• IT processes
• IT organization

 

Figure 1-1: IT components

Figure 2 provides a cost reduction framework that outlines the strategies discussed. Although the strategies are categorized within a specific component of IT, they have overarching ramifications across all the components of IT. 

Business applications	Technical infrastructure	IT processes	IT organization
Look at cost reduction holistically	Change the game	Focus on what is important	Manage and control IT
Innovation is better than cutting	Know the impact of business changes	Raise the bar for ROI	Reduce hidden IT costs
Make sure the technology supports your strategy	Delay costs if you can	Look at the total cost of ownership	Consider alternate delivery models
Have an eye on the long haul	Match spending to risk appetite	Cut the right costs	Reduce service levels
Implement small, select projects	Consider IT investments	Identify what you can eliminate	Implement a culture of cost awareness
	Simplify, standardize, and consolidate	Leverage IT financing, procurement, and contractual aspects
	Pay only for what you use	Review policies and procedures
	Consider green initiatives	Plan ahead

Figure 1-2: Overarching cost reduction strategy framework

As shown in Figure 3, it is important to support the expense management strategies by improving communications with business executives, by having a thorough and rigorousstrategic planning process, and by implementing a structured and consistent governance process. 

 

Figure 3: Critical components for effective cost reduction