As organizations emerge from lockdown into a damaged and fragile economy, they will inevitably turn their attention from growth to cost management. Of course, while financial health has always been fundamental to the current and future success of an organization, the disruptive influence of COVID-19 has intensified the need for careful cost control and stringent cash management.
Post-lockdown, the office of the CIO will face even more pressure from both the CFO and their own line of business to demonstrate the value of technology initiatives. CIOs will have to be focus on delivering cost and cash savings whilst also optimizing performance and efficiencies – a challenging task when IT spend has typically been hard to track. In this article, we look at how CIOs can manage these conflicting agendas, by creating an internal market for technology services, and building a more transparent relationship with CFOs and other business leaders.
Building resilience in a changing landscape
Nobody yet knows what ‘the new normal’ will look like for their industry or organisation, we do expect a fundamental and systematic review of all aspects of operations and of course spending. Along with making tactical cuts quickly, businesses must consider how they can find ways to reduce costs whilst also building resiliency for the future.
In the face of the COVID-19 lockdowns, businesses have had to replace physical with virtual and have quickly introduced new technologies and alternative operating models. An interesting example of this is the way that remote working has been accelerated. In places, this has been so successful that some corporations are now making the change in work patterns a more permanent set-up, and releasing expensive business premises and infrastructure.
Getting a handle on existing IT costs
However, before refining existing operations, it’s important that organizations first establish a reliable baseline of costs. Many do not have a clear view of total IT costs, including where they spend, how effective that spend is, and how reliable and accurate their data is. This might be for a host of reasons, for example: lack of accounting for shadow IT, a lack of integrated reporting across cost centers, and allocation policies which disguise total costs.
The absence of this granular information makes it difficult for a CIO to get a clear picture of total costs, and to relate them to the services that drive those costs. That is why it is critical for IT leaders to embrace the discipline of “IT Financial Management”, and to move away from IT as a cost center, and to a provider of internal services which are enablers to running or growing the business. Where internal technology services are recharged to the business units who consume them, this creates a clearer focus on the value-add of those services, focuses attention on opportunities to make efficiencies, and informs decisions on whether these should be provided by in-house teams or bought in from specialist providers.
Turning IT into a service
Implementing this approach of Technology Business Management (TBM) – managing the technology function as if it were a business – is an important first step into the post-COVID world. It means that the office of the CIO has the financial transparency to demonstrate the “true” business value of IT.
As TBM is implemented and understood by the business, it allows for technology costs to be managed as a service. This means that cost reduction initiatives are more meaningful, and less likely to create collateral damage by inadvertently removing services that parts of the business relies upon.
Taking cost out
From an examination of the baseline costs of many large organizations, Infosys analysis has shown that cost savings in excess of 40% are possible. By carefully designing efficiency programmes, we have also been able to set up programmes so that they are self-funding – by reinvesting short term cash savings into transformational programmes.
A summary of some of the common drivers of cost reductions is illustrated below:
A further benefit of many of these levers is that cost savings can be delivered without a reduction in the value of the services to the business – in fact, many of these can deliver lower cost and higher value add in parallel.
Changing the game for CIOs
Where CIOs successfully transition from leading a cost center which “keeps the lights on” to a service provider that is integral to the running of the business, they start to make the transition to becoming a true strategic partner to the business.
Nowadays it is increasingly impossible to separate business strategy from technology (look at how digital technologies have transformed whole industries over the last 10 years), but TBM closes the gap between organizational silos by providing a common language for the CIO, CFO and business unit leads, to integrate their plans to build the new normal.
Partner, Infosys Consulting
Based in our London office, Ian leads our European CIO Advisory practice, servicing blue chip clients across all Industry sectors. He has over 25 years experience in technology leadership, with a track record of delivering large technology led transformations.