Budgets are limited and investment resources are often insufficient to fund all investment requests from corporate departments. Regardless of the chosen set of investments, it is not uncommon that Chief Information Officers (CIOs) and their teams are tasked with incremental responsibilities, particularly given the focus of many businesses is on Digital Transformation and other Digital Initiatives.
Digital Initiatives for Revenue Growth – one of the key 2020 CEO priorities – have a direct connection to increase in IT spending. As a result, corporate growth strategies are pressuring IT budgets higher according to Cesar Lozada, Sr. Principal Analyst at Gartner during a recent Enhance Cost Optimization Efforts With Effective Communication webinar.
Even as CIOs are seeing increasing demands on IT organizations, their budgets are down 5%+ YOY (as of May 2020), and down 8% from the expected increases as the beginning of 2020 according to Lozada. As a result, Cost Optimization is a necessity.
Not surprisingly, more than 60% of CIOs say that cost reduction is the primary tactic to fund Digital Transformation; and more than 50% of CIOs say that cost reduction efforts are needed to control increasing IT costs.
But for most, cost management has been reactive, rather than proactive, disciplined approach to optimizing costs. As a result, Sourcing Advisors Group findings show that many IT organizations have been unable to generate meaningful cost reductions, beyond short-lived down-ward ticks that are often followed by large spending increases.
Yet, the potential for cost reduction to fund Digital Transformation, and other business priorities is substantial. Cost reduction can be achieved through a variety of tactics, including IT team reorganization, in/out-sourcing, and vendor spend & contract renegotiation (Strategic Sourcing). Sourcing Advisors Group experience shows that broad IT Strategic Sourcing initiatives often result in 20%-25% cost reduction, without impacting IT or LOB staff. That is, a well-designed and effectively-executed Strategic Sourcing initiative can generate hard cost reduction of $25 – $30 million for every $100 million in IT spending with suppliers across every functional area by establishing terms & conditions and pricing transparency.
Sustainable most-favored-nations terms & conditions and pricing can create cost reduction across all IT spend categories including Data Center & Colos, Cloud Services, Communication & Networking, Hardware, Software and Professional Services & Staff Augmentation, with cost reductions ranging from 5% to 35%+.
Given business needs and limited resources, CIOs should leverage best-in-class Strategic Sourcing capability to capture 20%+ cost reductions that can be used to fund Digital Transformation initiatives and other growth priorities.
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Sourcing Advisors Group is offering a no-cost Spend Assessment to help CIOs and other IT leaders estimate the potential benefit of a robust Strategic Sourcing initiative. Please contact us at sourcing@SourcingAdvisorsGroup.com or call us at 415.426.6744 to discuss a no-obligation Spend Assessment.