Cost Control for CIOs and CTOs
Leave a Comment
Holding the Line and Doing More, With Less
In today’s dynamic business environment and economy, Chief Information Officers (CIOs) and Chief Technology Officers (CTOs) are under increasing pressure to “hold the line” and “do more with less” … all at a time when baseline IT (Information Technology) operating costs are increasing based on a variety of factors outside their control (e.g., pay increases, benefits cost inflation, and technology licensing and maintenance price escalation).
On top of this, many CIOs and CTOs are being asked to “hold the line” on enterprise IT costs, while at the same time being served with even greater and more diverse business demands for new capabilities (e.g., application upgrades and platform extensions) as well as a burning desire across all business functions to leverage transformative next-generation technology (e.g., Artificial Intelligence, Machine Learning, Advanced Automation, etc.).
How should a modern CIO / CTO “thread this needle,” successfully delivering innovative solutions and quality services to their organization, while at the same time responding to the pressure to control costs?
Solving the Financial Jigsaw Puzzle
Not all IT leaders have access to decipherable, let alone insightful, financial reports and analytics – what they have is more like a financial “jigsaw puzzle.”
Typical complications include inaccurate categorization of IT costs, IT spend allocations distributed arbitrarily across functions and departments (or intricate formulas for calculating / allocating costs with inconsistent application of capitalization rules, and / or lack of year-over-year comparability while not reflecting reality), and difficulty in comparability due to frequent reorganizations and reclassifications.
Fortunately, one of Core Catalysts “sweet spots” is helping “untangle” financial data to create clarity and support analysis. This means that we are frequently asked by CIOs and CTOs to work with them and their teams to establish a clear picture of spend, taking into account costs incurred centrally versus in departments, salary and non-salary trends, operating and capital differentiation, allocations, project accounting, and other areas of potential murkiness.
Re-Baselining IT
The Core Catalysts team includes c-level operators with decades of IT leadership experience. We have worked with hundreds of IT leaders to align their organizations with new realities and an eye towards cost control.
We work side-by-side with CIOs / CTOs to re-baseline IT strategies and operations from the ground-up, considering both existing needs (i.e., “day-to-day” operations) and future requirements (e.g., major upgrades, implementation projects, etc.).
Our experiences show that, although daunting on the surface, re-baselining serves multiple purposes and sets the stage for ongoing, shared fiscal accountability between IT and the rest of the business, that positively changes the dynamic of how the business sees and works with the IT function.
Since re-baselining will inherently drive change, we are also often asked to outline a people-oriented roadmap and translate practical plans into resonant stories that support and communicate the organizational imperatives for change to all key stakeholders.
And, having re-baselined, Core Catalysts frequently works with our clients to reforecast and develop projections to tell the IT story to stakeholders at the executive and board level, underpinned by comprehensive and compelling financial business cases to illustrate returns on investment (ROI), taking into account “total cost of ownership” (TCO).
Initial Assessment | Key Focus Areas
A well tested approach that can be used to assist with re-baselining includes:
Appraisal of IT Services
- What services does the organization require to thrive?
- Are there services missing?
- Are there services which are no longer required?
- Are there services that do not belong in IT (that could be outsourced, etc.)?
Assessment of Reference Architecture
- Has IT made the most of next generation technology (e.g., SaaS, Cloud, etc.)?
- Has the organization any duplicated (triplicated, etc.) technology solutions and services?
- Is it time to rationalize past and future decisions?
Sourcing Strategy Review
- Are the costs of services in line with benchmarks?
- What services should IT provide internally?
- What services should IT provide externally?
IT Governance
- Are business owners collaborating with IT on projects and decisions (that impact IT)?
- Are all the costs and associated organizational impacts considered when making IT investment decisions?
- Does IT have a seat at the table on overall business goals, objectives, and strategy, and how they can support and enable them?
IT Organization and Culture
- Is the current IT organization structured for effectiveness?
- Is IT culture focused on efficiency?
- Is the CIO / CTO empowered to make organizational decisions?
- Is there ‘shadow IT’ in business units or other non-IT parts of the business?
Financial Impact of IT Operating Costs
- Based on re-baselining, what are the revised financial projections for IT spending?
- What financial impacts would this have on the organization (a) in the short term, (b) in the medium term, and (c) in the long term?
- What are the key messages and “stories” that need to be communicated, and to whom?
IT Cost Control is a Team Sport
Our approach to IT cost-control depends on the adoption of an efficiency and effectiveness mindset for technology stakeholders across the organization … cost control is a “team sport.”
To that end, we recommend that CIOs / CTOs engage their peers in their efforts to reduce IT operating costs: the Chief Financial Officer (CFO) and Chief Human Resources Officer (CHRO) are often key partners in these efforts and should co-sponsor any transformational work, with the Chief Executive Officer (CEO) supporting any drive for shared IT governance and decision-making.
How is Core Catalysts Different?
Unlike many larger firms, Core Catalysts is platform agnostic, meaning that we are neither tied nor beholden to any one solution provider and can recommend technological approaches and system selections that are exactly calibrated to our client’s needs (versus our own).
Equally, while we have meaningful offshore resource capabilities for custom development, software implementation, and system integrations, we do not have the same pressure to “feed the beast” as larger firms, and our business model is also not predicated on tying our clients to long-term support contracts that are costly for them but profitable for us … we have no interest in building systems that only we understand and can maintain!
Put bluntly … we put what is right for the client first and foremost.
Finally, for every engagement, our aim is that the client realizes true and ongoing economic value from our services, measured as a multiple of our fees: our goal is to deliver a return at least ten times greater than the dollar value spent.
To achieve these ROI levels, we approach all work by understanding expected business impacts first, and then planning our efforts accordingly, while challenging any assumption that prevents us from providing maximum value or lessens the business case for our efforts.
In addition to bringing experienced teams and proven tools and methodologies to each engagement, we pride ourselves on our ability to bring a sense of urgency, combined with a pragmatic approach focused on delivering “dollars and cents” value to our clients … if it doesn’t make sense to you, it doesn’t make sense for us.
Next Steps
If you would like to find out more about our IT Cost Control assessments and IT system modernization business case generation expertise, reach out to us today!
–Mark Jacobs, Client Service and Delivery
