The pandemic has resulted in budget cuts that potentially could affect growth projects across all levels of the enterprise
CIOs say, moving forward with digital transformation initiatives amidst budget cuts is not an easy task. They clarify that cost-cutting doesn’t mean that all budgets have been frozen; organizations have continued to invest in upcoming tech, including cloud and digital. Organizations are now focused on evaluating application portfolios, re-ranking initiatives based on priorities, and redirecting investments into areas that add more value to those that meet the business goals.
Successful enterprises demarcate cost-cutting decisions differently. They implement not only cost-cutting but also cost and value optimization, mostly to meet targets. In most cases, cost optimizing is more about balancing value, risk, costs, and value optimization across the enterprise. A practical CIO will be aware of areas that require cost-cutting and will know of initiatives where investing is necessary to achieve varied favorable business outcomes.
CIOs tend to target compensation when they are faced with tight budgets. Experienced IT leaders say that this practice should be avoided. They propose that the initial focus should be on third-party vendors spending. The majority of the budget spent on vendors is for renegotiation of contract terms. Once that space is completed, the focus should be diverted to internal spending. C-suite leaders advise that freezing of compensation is valid in specific scenarios, but cost-cutting in areas like equipment, party, and plant; non-vendor related modules should be finalized first.
IT leaders acknowledge that identifying internal spending is complex as internal politics are in play. Organizations have traditionally struggled with identifying internal spending as it requires detecting gaps in the day-to-day processes and getting tasks to be more efficient. Each of the business tasks is a component in the value chain with business output and results.
Making IT “fitter”
Top CIOs believe that the cost-cutting strategy has to be designed on the crop failure model. Any factors like natural disasters, over or under rains, fire, etc., can put the entire year’s harvest process in jeopardy. So CIOs are coming up with new learning goals in a measure to retrain the organization as a whole- right from the C-suite executives to the last employee.
Such measures include simplification, optimization, and automating as many processes as possible. Most organizations have eliminated unnecessary and obsolete apps and data centers and shifted to commodity centers that reduce a significant part of the costs.
IT leaders are pushing for better employee experience, along with cost optimization. When employees are encouraged to work in domains and modules with efficient tools, employee retention rises, which cuts the cost marked for recruit onboarding and training. Organizations prefer to invest in areas that increase the potential for better CX.
Decommissioning of redundant policies and re-evaluation of portfolios
Most IT enterprises have implemented a five-year decommissioning policy where redundant software and tech are being decommissioned. This will free a considerable amount of the budget spent on maintenance and renewal of licenses. Removal of such outdated tech also helps boost the cybersecurity of the network and increases the space earlier used for storage.