Businesses have opportunities for IT cost reduction

Businesses can cut IT costs by reviewing infrastructure and operations spending and looking for small efficiencies.

Business leaders are well aware of the vital role played by information technology in the enterprise. Across all sectors, IT solutions automate key processes, leading to increased employee productivity along with greater levels of accuracy and efficiency. Such tools have valuable roles to play in terms of internal and external communication, product design and development, administration, finance and sales among other functions.

In many organisations, IT investment and management accounts for a significant proportion of the budget. Providing technology delivers a worthwhile return on investment, companies are willing to commit funds to this area. But business leaders are also conscious of the potential benefits for the overall bottom line if they are able to reduce capital expenditure and lower total cost of ownership.

The challenge is to find new efficiencies in IT processes, which help organisations make savings without undermining what is a vital function. With technology innovation continuing at a rapid pace, companies with their fingers on the pulse can take advantage of the latest techniques, solutions and approaches to reduce spending. This does not mean they are placing less emphasis on IT - a move that would be counter-intuitive in the digital age - but they are seeking more value for money.

How can businesses reduce IT costs

The tough economic climate has made it even more important for companies to increase IT efficiency. According to analyst firm Gartner, IT departments are under "intense pressure" to cut costs where possible, to help their organisations restore the health of the bottom line. In a recent report, the company identified a number of actions which it claimed could reduce IT infrastructure and operations (I&O) expenses by a tenth over a 12-month period. Gartner claimed that cost efficiencies of up to 25 per cent are achievable within a three-year timeframe.

Firstly, the firm suggested that IT departments should defer non-critical initiatives until a later date, focusing only on immediate priorities. If companies can make a significant contribution to I&O cost reduction by doing so, the idea has merit. But ultimately, a choice must be made between potential gains from investment and immediate savings obtainable by delaying an upgrade. In a similar vein,
Gartner suggested that streamlining IT operations may be worthwhile, reducing or eliminating human involvement in processes where possible.

The analyst urged businesses to re-examine networking costs, given that data centre developments account for the 'lion's share' of costs. "Substantial steps can be taken to optimise network costs by refining the design and sourcing of their networks," it said. Using virtualisation can help in this respect, with servers running at very low average utilisation levels. "Virtualisation software increases utilisation typically by fourfold or more, which means for a given workload that can be virtualised, a company can typically reduce the number of physical servers by fourfold," Gartner said. "Conservatively, this means hardware and energy costs are each reduced by more than 50 per cent."

Cost savings in the data centre

Companies can also cut IT costs by reducing power and cooling needs. "In the past, newly built data centres often opened with huge areas of pristine white floor space, fully powered and backed up by an uninterruptible power supply, water and air-cooled, and mostly empty," Gartner noted. "With the cost of mechanical and electrical equipment, as well as the price of power, this model no longer works. New design approaches can result in data centres that utilise significantly less power, take up less space and cost much less."

Other suggestions for IT cost reduction include containing storage growth - with virtualisation again offering value in this respect - and pushing down IT support. Gartner claimed the latter accounts for eight per cent of technology spending in the average business. "Most organisations have at least four tiers of support, each with a different cost point and level of expertise," the analyst claimed. "To reduce costs, organisations need to drive those support calls down to the lowest tier that can satisfactorily resolve users' issues."

No 'magic bullet' for cost reduction

Jay Pultz, vice-president and distinguished analyst at Gartner, said that with infrastructure and operations accounting for around three-fifths of all IT spending, organisations are understandably looking for ways of increasing efficiency in this area. "With IT budgets remaining tight, it's no wonder that cost-cutting pressure continues to be intense," he stated. However, the expert noted that there is no 'magic bulllet' for businesses as they aim to make their funds stretch further. Each company is different, and savings will obtainable - or not - in particular areas according to their individual characteristics.

Most organisations will be able to identify areas where savings can be made without significantly impacting upon productivity levels and workplace performance. What is most important is that IT leaders and business executives are evaluating the performance of their systems and searching for efficiencies. Investments must be accountable to the bottom line - it is no good allocating a share of the budget to a particular project or function and then failing to assess performance and efficiency. If companies are able to make small gains across the IT department - including and beyond infrastructure and operations -
these can soon add up to meaningful overall savings.


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