Insight

IT cost structure optimization

Creating a more dynamic technology cost structure in response to volatile markets

Chris Panneck

Chris Panneck

Managing Director, CIO Advisory, KPMG US

+1 214-840-6781

Part of KPMG's series COVID-19: Insights for CIOs and IT executives on considerations for building IT and business resilience in challenging times

The longer the COVID-19 pandemic situation lasts the more likely that even the strongest of organizations will look to their balance sheets to face difficult financial decisions.  It is during these times that CIOs tend to get pressures to cut costs, oftentimes coming at a significant price to the business in the long-term.

In this video, we discuss the levers to pull in order to optimize cost-cutting initiatives, while coming up with a comprehensive plan to simplify, restructure and strengthen your IT operating model to better position your organization for the long haul.  

 

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Video companion text

Maintaining IT cost optimization

Steve Bates, Principal, Global Leader, KPMG’s CIO Center of Excellence

 

The longer the COVID-19 pandemic situation lasts the more likely that even the strongest of organizations will look to their balance sheets to face difficult financial decisions. It is during these times that CIOs tend to get pressures to cut costs, often times coming at a significant price to the business in the long-term.

However, there are levers to pull in order to optimize cost-cutting initiatives, while coming up with a comprehensive plan to simplify, restructure and strengthen your IT operating model to better position your organization for the long haul. 

Over the past several months, many IT organizations saw capex and opex actually grow beyond their budget in the scramble to support remote working, scale cloud and deploy productivity and collaboration tools. However, as we move forward through resiliency and recovery, technology executives can expect to be asked to identify areas of savings. 

The COVID-19 situation has made most IT organizations painfully aware of the fact that their traditional “core” has failed them and that they can no longer rely upon the same service delivery model. Below are two strategies for consideration, both of which can have a significant impact on cost as well as positioning your company for the future.

Lever 1: Redesigning the core

With so many changes having been implemented so quickly in this COVID-19 environment, what will remain permanently changed and what will return to a new normal? It is likely that with so many businesses now relying on remote working, and that type of interaction with their employees, customers and beyond, some of that will stick, especially those that have integrated cloud-native applications and modern infrastructure components into their IT operating model. The real question is can the cost constraints required by the current state and the needed technology investment be balanced?

Many companies have already switched their infrastructures to a hybrid, multi-cloud environment and wind up paying 30% more on resources than are currently needed. This opens a large opportunity to optimize the environment and reduce costs by upgrading out of date virtual machines, shutting down and right-sizing unused or under-utilized compute instances, and switching to the optimal pricing model for your cloud workloads.

By understanding the total cost of both current and future objectives, it becomes much easier to determine what specific levers to pull across the value chain.

Lever 2: Redefining the service delivery model

Utilizing global delivery models, outsourcing and offshoring has become a part of most company’s IT service delivery models. In the current pandemic environment it’s also meant reviewing their contracts for a more resilient future. Within your service delivery model, there are many hypotheses to consider, below are just few priority areas:

  1. Location strategy: Have certain remote working locations been more effective than others? Were you operating out of secure or approved facilities that are no longer accessible? Model the implications of a distributed or regional model on G&A costs like real estate, your business continuity requirements across centers, security and contractual issues, and a baseline of required modern infrastructure.
  2. Outsourcing agreements: Are your contractual obligations with offshore or remote providers able to be met? Has there been a significant drop in productivity or signs of lost expertise from your providers? Perhaps there is an opportunity to renegotiate or change service levels in exchange for price concessions or payments in terms. 
  3. Resource productivity: There may be work types and functions that be immediately removed, augmented or automated in an effort to reduce costs and increase speed. Targets like customer contact centers, testing and QA, event management and monitoring, should all be reviewed. Consider AI-enabled bots and machine learning to help continuously improve data and deliver results at scale. 

The goal is to help the organization preserve cash and avoid new costs while taking steps to emerge in a more healthy and competitive position. Resist the urge to cut the most strategic technology enablers, as depending on your industry, those investments could be critical in helping you reset, rebuild or reinvent your company.


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