Why Organizations Need to Rethink Their Short-Term IT Cost Reduction Approach

By Salil Godika, CEO, Synoptek – India

Evaluating an organization’s IT spending and periodically optimizing that spend is a critical driver of overall business success. Unfortunately, most enterprises equate IT cost optimization to IT cost reduction. This might seem like an instant remedy but in actuality, it is not sustainable in the long run. For continual long-term cost transformation, attention must be redirected from managing business-as-usual to pursuing activities that drive positive growth and value. 

Why short-term cost reduction isn’t sustainable 

As business leaders explore different techniques to navigate budget constraints in the highly volatile business environment, implementing a handful of immediate cost reduction measures might seem like the easiest option. But not evaluating IT spending or not knowing how they impact the delivery of technology services, overall business costs and revenue can lead to failed attempts at cost optimization. 

If the answer to any of the following questions is yes, it is time to relook your expense reduction approach: 

  • Are you only focusing on renewing existing IT contracts and not on capitalizing on current innovations or identifying new value streams? 
  • Does your business look at IT cost optimization as a one-time effort and not as an ever-evolving process aligned with the broader organizational goals? 
  • Do you find yourself driving efforts only toward instant technology rationalization and not building a long-term roadmap for technology implementation?
  • Are you succumbing to the pressure of consolidating or decommissioning your legacy systems – without putting effort into carrying out a detailed technical business review?
  • Do your business leaders view IT as a cost center and not as a strategic business asset that can steer the organization to greater heights?

Why long-term cost optimization should translate into value optimization

Cost optimization is a continuous process that requires organizations to align their efforts with the broader goal of maximizing business value. But simple cost optimization does not look at returns; it only focuses on cutting down on excess expenditure wherever possible. To ensure cost optimization translates into value optimization, businesses need to take a carefully planned approach to not only streamline their financial obligations during a period of diminished demand or reduced economic activity but also make decisions and take action, keeping the company’s best interest in mind. 

One of the biggest levers of budget transformation is the ability to compete in an increasingly dynamic marketplace. With the business environment constantly changing, new competition continuously emerging, mergers and acquisitions becoming increasingly common and global supply chains regularly disrupting the market, the right approach to IT cost optimization requires organizations to drive efforts in a way that allows them to compete and thrive. 

The right approach to value optimization can enable businesses to streamline spending, set an investment engine in motion and routinely reshape and redirect the approach to mitigate risks in time. By the same token, it can also allow for the identification of systems and solutions that no longer assist in reaching the overarching strategic goals of the organization. 

Such a well-planned evaluation practice can also aid in zeroing in on the right investment opportunities, empowering organizations to invest in flexible and scalable IT solutions to drive increased cost savings while also preparing the business for the future. Going beyond simple cost-cutting techniques and more toward continuous optimization allows enterprises to enable a more business-focused discipline that is intended to maximize organizational value while reducing spend. It will also shift focus on always identifying opportunities for cost optimization in order for the business to achieve more lasting improvements in cost efficiency and value. 

Technologies and techniques that help drive value optimization 

Modern technology plays a significant role in optimizing IT costs, allowing organizations to channelize and prioritize their investments. Here are three technologies that businesses need to embrace to enable value optimization:  

  • AI: Artificial Intelligence can be leveraged to minimize manually induced errors, improve business process efficiency and cultivate superior customer experience. The technology can enable organizations to delegate less sophisticated tasks to machines while allowing their workforce to focus on more strategic, transformation-oriented functions. This is done by way of AI’s innate ability to mimic human actions in order to scale and automate business operations, thus allowing humans to automate complex daily tasks for enhanced productivity output.
  • RPA: Technologies like RPA (Robotic Process Automation) result in increased ROI and overall company success. The utilization of RPA enables leaders and employees to decrease the load of mundane tasks, allowing them to focus on high-priority and comprehensive projects. By leveraging AI for highly repetitive and rule-based tasks, organizations can accelerate the speed of a multitude of manual assignments and cut down man-powered hours spent on lower-level activities.
  • Cloud collaboration tools: A poorly managed workforce causes severe employee disengagement, leading to billions of dollars in lost productivity per year. To keep up with the demands of the modern workforce, cloud-based staff collaboration tools are vital for productivity and engagement. The effective use of cloud collaboration tools can help organizations accelerate efficiency while maintaining compliance – all of which accounts for reduced operational costs in the grand scheme of things. 

Although leveraging innovative technologies is essential for cost reduction, sustainable value optimization also demands substantial business process reengineering and change management. Therefore, in addition to implementing new systems, businesses will also need to work with different stakeholders to re-examine their change management strategies and take a systematic approach to deal with the modifications that will be brought about by the transition or transformation. 

Enabling long-term IT cost savings

With worldwide IT spending expected to reach $4.4 trillion in 2022, the investments being made toward advanced technologies are soaring. This has compelled organizations to look at avenues for cost reduction but many still do not realize that these cutbacks are not sustainable unless they facilitate long-term value optimization. Successful and viable cost reduction is a direct result of continuous evaluation of an organization’s current and future needs, so leaders can curate the best roadmap, embrace the best technologies and implement the best change management strategies. Through careful assessment of existing business capabilities, organizations can drive new capabilities and cultivate new roles and skillsets that are perfectly aligned with its overarching business strategy. 

To drive effective long-term cost savings, it is important to inculcate a culture of uninterrupted cost transformation. Sensitizing the top- and mid-management executives to modify thought processes to focus on the long-term and follow an approach that helps the organization achieve increased ROI is critical to successfully driving change and overall improvements. 

Organizations must also work towards: 

  • Envisioning business goals and the IT investment required to achieve them.
  • Transforming the current IT environment by eliminating redundant and less productive systems, where possible.
  • Minimizing investment in declining business units.
  • Routinely monitoring and optimizing IT investments to address evolving technology demands.

Swapping the short-term IT cost reduction approach with long-term cost transformation is the only way organizations can improve operational efficiencies, deliver better customer experiences and build more trust. 

About the Author

Salil Godika is CEO of Synoptek India. With 25 years of overall experience in enterprise software product and IT services sectors, Salil’s expertise in marketing, business development and delivery help to link his deep expertise to service marketing and business development activities while contributing to the overall growth of Synoptek’s global business.

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