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From cost-cutting to cost optimisation: what the CEO wants of IT

from_cost_cutting_what_cCEO_wants_from_IT_blog_post.jpgIn a recent blog we discussed the results of a 2016 McKinsey & Co study on business technology, which indicated a misalignment in priorities between IT and business executives. In the survey, 44% of those in IT say that cutting costs is one of their organisations’ current priorities for the function. However, business leaders ranked cost cutting last, with only 16% citing it as one of their companies’ priorities for IT.

This isn’t a recent phenomenon; McKinsey notes that it’s the fourth consecutive survey that has indicated sizeable gaps in how business and IT respondents view priorities for the IT function. What’s causing this misalignment? And what are its implications for organisations?

Nothing new

IT has traditionally been looked upon as a cost centre by the business; a department that delivers little strategic value but is a necessary expense. As a result, IT teams are routinely hit with budget cuts, and limited by decreasing funding year after year. Because of this, when talking about a misalignment between the business and IT, it’s usually IT that’s advocating for its role as a value adding function, but it seems the tables have turned.

It appears that the board is already recognising the potential benefits of an IT-business partnership – but either this isn’t being communicated effectively to IT teams, or IT isn’t meeting them halfway. Regardless, when the priorities of the CEO and CIO are not in sync it inevitably leads to misunderstandings about the value that IT is delivering to the organisation.

VP of analyst firm Gartner, John Roberts, believes that all the years of dealing with the pressure of driving costs down has resulted in some IT leaders retaining that mentality, which has the potential to stagnate digital transformation. Speaking at the Gartner Symposium/ITxpo in Australia last October, Roberts said, “many CIOs are stuck in a cost-cutting cycle driven by simple expense-line trimming that is not tied to business outcomes. As a result, they are struggling to exploit technology fully in the move to digital business.”

Now, with the need to improve business processes whilst remaining cost efficient, there must be a shift in focus from IT cost-cutting to what Gartner calls ‘cost optimisation’. Roberts explains: “Cost optimisation in the age of digital business means that organisations use a mix of IT and business cost optimisation for increased business performance through wise technology investments."

Shifting the focus

In a recent report, consulting firm KPMG outlines that the cost-cutting mindset is not limited to CIOs who run their IT in house; the mentality tends to be the same for that use an outsourcing model. As KPMG’s David Brown told CIO Magazine, “IT leaders continue to focus on cost containment with their IT service deals, but in today’s business environment companies will have to spend money to save money”. While outsourcing tends to deliver cost savings for businesses and is a way to get the best value for money by tapping into skills and expertise, it shouldn’t be looked upon as a cost-cutting exercise.

Whether it’s a top-down communication problem or not, IT leaders should work on moving to a value-adding mindset. Brown says, “If organisations are truly seeking “innovation” (which they first need to define before they can seek) then cutting costs becomes less of a monolithic goal. Cutting some costs but more importantly gaining new capabilities (for example via cloud flexibility or analytics insights) is a fair trade-off. The next wave of major cost savings will come via automation, but a lot of IT work has already been automated or passed to a third party.”

Joining forces

The concept of strategic alignment of IT with the business has been around for a long time, but it remains an elusive goal for many organisations. The differences between CEOs and CIOs will always be there, but with some upfront effort from both parties, the gap can – and for the good of the organisation ­– should be narrowed. This requires IT to work closely with company leaders to hash out a business-driven technology strategy. To be successful, cost optimisation should be a continuous exploration of technology that adds business value.

The good news is that IT Managers won’t have to do much convincing. If business executives are already aware of IT’s value, half the battle is already won.

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This was originally posted by our colleagues at Oriel

Topics: Cloud Computing, IT Manager, Migration

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