Cost optimization in IT is a problematic area. On the one hand, IT generates high expenditures, so it's only natural that organizations look for cost-cutting opportunities. On the other, we live in a digital transformation age where technology serves as the core driver of business growth.
Can cost optimization of IT infrastructure take into account the future business growth, as well as address the current and future business needs? In this article, I will examine the problem of optimizing the costs of IT infrastructure to show you different aspects of this complicated process.
In what follows, I’ll show you what cost optimization in IT is and share the most important tips for:
- cost-optimizing your IT infrastructure,
- balancing cost versus performance,
- maximizing the value of your IT assets.
What is cost optimization in IT?
According to Gartner, cost optimization is:
"a business-focused, continuous discipline to drive spending and cost reduction, while maximizing business value."
Cost optimization initiatives include:
- obtaining the best pricing and terms for IT purchases,
- standardizing, simplifying and rationalizing assets such as platforms and applications, as well as processes and services,
- automating and digitalizing both the IT and business operations.
But how can an organization take the first step to optimize the IT infrastructure expenses?
Here are a few battle-tested tactics that help to optimize costs.
How to reduce the costs of IT infrastructure?
Here are a few ways to do it:
- Consolidate shared services
- Align IT with business priorities
- Get buy-in from all stakeholders
- Standardize your infrastructure
- Verify the actual usage of your IT systems
- Consider a hyperconverged infrastructure (HCI)
- Define your cost structures
- Improve your data management practices
- Transform customer service and support
- Identify inefficiencies
Consolidate shared services
The teams responsible for the system, storage, and network administration should work under one umbrella team. That way, you can optimize their workloads, help to avoid duplication of efforts, provide consistency in everyday operations, and minimize rework or integration in later stages of your projects.
Some companies decide to pair application and production support services exclusively with the product groups to which they are assigned. However, this prevents such resources from contributing to the entire organization.
Naturally, not all support resources could benefit from becoming part of the shared services team. However, you could look into hybrid models and consolidate them in a way that enables them to still be part of the IT staff, but with priorities defined by the business side of the organization.
By keeping IT staff engaged both with each other and other teams, you will allow a free flow of ideas and information without sacrificing the support for your product development. That way, workloads can be shared and balanced better, forging a path to optimizing IT resource use.
Align IT with business priorities
Cost optimization is about maximizing the impact of your efforts from the monetary perspective. However, it's important that your IT infrastructure also reflects other priorities of your business – for example, innovation.
Activities such as auto-scaling, rightsizing, or just-in-time provisioning all bring a positive impact on your results. By minimizing your expenses, you ensure that your bottom-line profits will increase.
But consider the role of IT in driving digital transformation processes at your company. Looking only at the cost side of the equation might prevent you from utilizing IT resources to reach your general business objectives. Make sure to always review your optimization measures against your goals to make sure that you're not curbing the potential of your IT teams.
Get buy-in from all stakeholders
For optimization to work, you need to get buy-in from all of the key business stakeholders. Lack of support in changes applied to cost approaches will make implementing optimization activities very difficult.
It's critical to keep an open communication line with business teams to understand their plans and needs. That way, you will build mutual trust and get buy-in for your optimization plans.
Instead of relying on a transactional relationship between tech and business teams, find opportunities for more interaction.
This is the best way to optimize standardized offerings and minimize nonstandard requests.
Ultimately, a successful and long-lasting optimization approach requires an agreement between all the teams and stakeholders looking to meet key business priorities.
Standardize your infrastructure
The core activities of cost-cutting in IT lies in updating, integrating, and modernizing both the hardware and software.
Legacy systems might be causing you to lose money every single day. Despite this, many organizations face strong resistance in moving to modern systems that automate processes and make optimization possible.
Every organization will find some redundancies in its IT infrastructure, be it in independent projects or following mergers in various geographical locations. However, modern cloud infrastructure solutions help to eliminate these complexities. They also simplify software management processes by offering methods such as hybrid cloud architecture.
Cloud adoption doesn't only reduce costs — it speeds up processes, makes infrastructure more agile, and offers the opportunity to unify diverse systems to achieve centralized administration and control.
Verify the actual usage of your IT systems
The cost of IT can add up quickly when your workloads are lighter than the buildout and licensing of your infrastructure.
Make sure to approach software licensing carefully — even the best pricing models can suddenly become much too high when workloads are consolidated or in the case of underused systems.
This is particularly true for databases that present a complex and potentially expensive problem in traditional infrastructures. So, take a close look at how your teams are actually using your IT infrastructure – you might find out that you're overpaying for some plans.
Consider a hyperconverged infrastructure (HCI)
Hyperconverged infrastructure is an approach that can minimize the number of resources required to maintain storage, computing, and network systems. There's no denying that investment in HCI comes at a significant upfront cost.
However, in the long run, it can reduce the overall data center footprint, maintenance, and support expenses. Moreover, hyperconvergence helps organizations to achieve operational efficiency and faster deployment together with greater scalability. That's why HCI is definitely worth your attention.
Define your cost structures
To gain control over your budget, you need to find the methods for quantifying your cost savings properly. This is where the cost structure for your IT environment comes in.
By breaking down the cost of individual components, you can quickly evaluate different approaches to ensure that financial impact becomes the top priority. An optimization program that isn't supported by continuous calculation of the financial impact risk doesn't bring the desired results. However, you also don't want to lose sight of your key goals here, which is reducing costs.
Here's how it plays out:
- If you're using cloud-based services from a third-party provider, this will be a relatively straightforward process where you calculate the cost per transaction, instance, user, or something else. This is usually the foundation of your business agreement and subscription terms. The same applies to setups where you outsource the hosting and operations of proprietary infrastructure to a third-party provider. However, in both cases you might still find parameters in the agreement that need to be reflected in your cost structure — for example, special discounts or term commitments.
- And what if you're running a traditional on-premise infrastructure hosted in your own data center? You can calculate the cost of supporting the entire system or the individual resources assigned to it. But make sure to count in the cost of the operating systems, dedicated hardware components, as well as maintenance and administrative efforts.
Improve your data management practices
Data is a critical asset of organizations today. But some still fail to treat it as a valuable element of their business strategy and never expand data usage across the entire organization.
By allowing many users to take advantage of data, you open the door for generating business value through more accurate and improved decision-making.
But that's not everything. Cost-efficiency is one of the key benefits of a data-driven enterprise, according to a survey from the Harvard Business Review.
When organizations become data-driven, they gain the ability to provide people with the right data at the right time and in a format they can actually use. By prioritizing data analytics, businesses can implement a data maturity framework that helps to save up to 25% of their revenue.
Transform customer service and support
By automating the provisioning of information updates, business services, and customer service processes, you stand to save a lot.
For example, customer service will be increasingly delivered through technologies like chatbots. A chatbot (also called a virtual customer assistant) makes truly effective use of the available resources. Since many support questions are repeated, the answers are already known and can be easily automated.
This allows the support staff to dedicate more time and energy to the customers presenting the more complex problems. In the Gartner study mentioned above, organizations reported a reduction of up to 70% in chat, email, call inquiries after implementing virtual customer assistants.
Avoiding infrastructure overprovisioning is a critical goal for most organizations. However, the process is often challenging.
For starters, it's difficult to estimate the optimal amount of resources that need to be assigned to a brand-new application or workload. Workload intensity may vary due to seasonality, and changes in business processes may impact the demand for services. That's why resources that are allocated on the basis of forecasts need to be adjusted to the actual outcomes.
You should evaluate and optimize resource allocation on an ongoing basis.
By identifying excessive allocations and decommissioning over-allocated resources, you will have a direct impact on your overall expenditure.
Optimizing IT costs with a technology partner
Sometimes it's not easy to properly assess resource allocation and expenditures, or properly understand opportunities for optimization when you're caught up in the middle of everything.
That's why IT consulting services have become such a popular option for organizations looking for insightful audits and optimization plans. Companies that want to learn how to utilize their resources better and improve their infrastructures can take advantage of services offered by professional teams of IT experts.
Would you like to know what such a consulting service looks like in practice? Here is a case study that displays how a technology partnership with an outsourcing provider works and what benefits it brings.
Case study – Leonardo Hotels
Leonardo Hotels is a brand owned by Fattal Hotel Chain, a global leader in the travel and hospitality sector. We have become a digitalization partner of Leonardo Hotels to help the business identify and remove any of the business growth liabilities and provide it with custom digital tools to optimize different processes and boost the competitiveness of their online booking system.
Our collaboration with Leonardo Hotels is a long-term one. We built a dedicated development center which comprises industry business experts, experienced senior developers, and talented junior developers.
In the course of our long-term business relationship, we have scaled our development center up and down, depending on the changing needs of our client. Our development center could quickly adapt to the circumstances, onboard new team members, provide updates and solutions, offer maintenance, and carry out audits. This is how Leonardo Hotels receives ongoing support in the optimization of its IT resources.
When optimizing an IT infrastructure, organizations should never forget about the growth opportunities technology enables today. To achieve the best results, it's worth making resource optimization a part of your company culture and continuously review the existing processes to improve them. Consolidate and standardize your solutions whenever possible. Implement smart data management practices to move along the path to digital transformation.
And if you have any questions, reach out to our consultants. We have many years of experience in supporting companies operating across different sectors in optimizing their infrastructures. Our IT consulting services identify areas that need improvement and pinpoint new opportunities offered by technology.