Applying cost reduction in IT without loss of competitiveness

Por: opservices em 09.01.2017

Tips to reduce IT costs

With the current economic downturn in Brazil, reducing IT costs without decreasing the level of service, and thus the quality of the final product, is no easy task. However, it is possible to maintain the quality of IT services without raising costs.

 

cost reduction in IT

 
Cost reduction in IT is not a simple task and may involve reengineering in IT processes and in the company’s very business. This is because most of the time companies’ cost reduction is directly linked to increase in investment in technology and reduction of expenses in processes that are less necessary or can be replaced or automated by technology.

Therefore, it is a very big risk to cut IT spending without proper planning. In this article we separate some tips on how to do this, with due caveats.

 

Cost reduction strategies

In reducing IT costs there are two basic strategies: (1) Cutting vertical costs and (2) improving processes. In cutting vertical costs, these are reduced with teams, licenses and technology proportional to a reduction of the entire area. If 10% reduction in costs in the area are required, the entire IT is shrunk by the same percentage for this purpose to be met. This strategy is the fastest one but it decreases the company’s competitiveness in the long run. It can only be done in extreme cases where it shall be temporarily reduced, with a forecast for growth resumption in the medium term.

The process improvement strategy causes increased investments in technology to bring about increased productivity. It increases the IT costs but reduces costs in other areas. This is a long-term strategy that makes the organization more competitive.

 

Process automation

An example of cost reduction through process improvement is automation. Costs with human capital on tasks that can be automated are a waste of resources and time. Therefore, companies should seek to be focused only on their critical processes for delivering value to the customer.

Processes in which automation does not generate customers’ loss of perception of value must be automated without concerns. Here are some examples from the IT area: backup processes, software upgrades, equipment maintenance, device monitoring, problems root cause discovery, documentation, and more.

 

Migrating to the cloud

According to the technological advance, companies of different sizes and different segments are seeking in innovation a way to increase work productivity and at the same time reduce IT costs. In view of this, the IT sector must be aware of the new technological trends that the market offers and in this way look for innovations that can be implemented. A great example is Cloud Computing, which, in addition to leveraging the service, reduces costs with IT, increasing productivity in the sector.

Reducing total cost of ownership is imperative for cost reduction. The business purpose in most companies is certainly not data center management. With the popularization of cloud services, in most cases, it does not make sense to spend time and resources building data centers. Many times the use of a data center in Cloud, as in Amazon Web Services (AWS), for example, is more efficient. This allows companies to pay only for the resources used.

A common example is when companies invest in equipment to ensure maximum availability but these resources are completely used only at certain times of the day. During the rest of the time the machines are underutilized. This creates a huge loss for businesses.

 
Total Cost of Ownership (TCO) – See the most common examples of cost of ownership which can be reduced by using cloud services:

  • (%) in employees’ salaries;
  • (%) in salaries for such employees’ managers;
  • Development cost (internal or external);
  • Costs with location, equipment, rent, sites etc.;
  • Training costs (learning curve);
  • Exchange barrier (if I change employees, how much I can lose);
  • Involvement with professionals from other areas;
  • Cost with knowledge in people’s minds;
  • Fixed costs that can be scaled down (ex: electricity).

 

Cost reduction in IT in practice

Cost reduction with new investments, as we have seen in previous items, becomes very clear when one perceives cuts with internal or outsourced teams that are no longer necessary. Other than that, it is quite difficult to quantify how much is reduced in general costs for the company with new investments. And that is why managers have difficulty using this approach and end up, most of the time, using vertical cut to staunch temporary losses.

To get away from this line of thought that brings loss of money in medium and long terms, managers need metrics and performance indicators for their entire team and all assets and services under IT responsibility. From there, it is possible to have support for cost reduction plans with investments in new technology.

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