IT is hung up on cost cutting but tactical measures that seem
to offer immediate savings often end up costing the business in the long term.

That pattern is widespread across industry because of the fragmented
way organisations approach costs internally, which often leaves IT working in
isolation, according to Gartner.

In a survey by the analyst firm of more than 2,000 CIOs
worldwide, some 65 percent think the main barrier preventing organisations from
continuously optimising IT costs is the failure of all parts of the business to
work together with shared goals.

The answer, Gartner says, is to adopt a handful of common principles
across the business for cost reduction.

Principle 1: Transparency

Transparency of costs is essential if firms are to be able to
distinguish areas where savings can be made from areas where cuts might be
harmful to the business.

“With transparency, additional benefits can include
better demand management, identification of business value, the ability to run
IT like a business, better IT estimation capabilities and overall better
marketing of the IT capability in general,” Gartner said.

Principle 2: Flexibility

According to Gartner, settling on the right level of IT costs
isn’t just about reductions: it is more about striking a balance between lower
unit costs and flexible sourcing.

This philosophy is important in avoiding the common problem where
an organisation has cut costs but then finds itself straitjacketed by fixed and
long-term contracts that prevent it from making further reductions if demand
for IT reduces. The only option is then to pay significant exit penalties.

Flexibility needs to be a guiding principle in ranking
initiatives and in ensuring the business consumes only what it needs.

Principle 3: Accountability

IT leaders need to take responsibility for the future
direction of their department and avoid the situation where they are purely reactive
to business needs and unable to influence demand.

“If IT leaders can better predict, with some degree of
certainty, the demands on IT, they will be in a strong position to source IT in
the most optimal way,” Gartner said.

One strategy is to make an individual business department more
aware of demands on IT by using techniques such as chargeback and showback.

Principle 4: Simplification

By reducing complexity, IT can lower costs. Of course,
factors other than complexity can be the source of increased expenses – for example,
staffing costs and geographic location – but complexity imposes an unnecessary
surcharge, according to Gartner.

That surcharge can be as much as 25 percent on a unit cost

“That means the same IT unit of work could cost up to 25
percent more in a highly complex environment than it would in a streamlined
environment,” Gartner said.

That simplification of systems shouldn’t come at the expense
of business value. However, unnecessary levels of complexity are areas where it
adds no value to the enterprise.

Principle 5: Discipline

Optimising costs should be seen as a discipline rather than a
one-off project. That discipline needs an accountable owner and should be led
from the top – normally by the CIO.

Organisations need to be thinking about longer-term cost
targets, and should measure improvements. Businesses that do these things well
often include people from outside IT to take account of business outcomes and
constraints rather than just technical specifications.