Australia’s IT leaders shouldn’t expect pressure on IT budgets to subside in the near future, according to Apptio Asia-Pacific General Manager Pete Wilson, though budget reallocation is possible if they demonstrate how dollars being spent connect to business growth.
Tougher economic conditions are forcing organizations to look at IT spending and ask where they can make cuts. This follows a rapid uptick in spending during the peak of the COVID-19 pandemic as businesses rushed to manage remote workforces and expand digital strategies.
Wilson, who has played a key role at IBM-owned IT financial management platform Apptio over seven years, said blanket spending cuts risked impacting growth. However, linking spending to growth, as well as IT financial management practices such as FinOps, can help safeguard budgets.
- Cost cutting has replaced COVID-induced IT spending surge
- Businesses are deepening their IT finance understanding
- FinOps turning public cloud spending towards optimization
- Spending trends include security, digitization and cloud
Cost cutting has replaced COVID-induced IT spending surge
During the COVID pandemic peak, Australian organizations partially removed cost control levers on IT spending as they fast-tracked and pivoted digital strategies. Almost overnight, they needed to invest in areas such as user devices for remote workers, remote access and their digital presence.
“It was spend to survive,” said Wilson. “The days of a more measured economics of investment and return sort of went out the door.”
That’s now being pared back. For local chief information officers and IT teams, that can mean doing more with the same, or more with less. Wilson has seen many businesses in the Australian market required to accommodate 10–15% flat IT cost reductions across the board.
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However this may not always be in the best interests of the business.
“It can lead to not the wisest of cuts,” said Wilson. “Because the question is not what you are spending on, but where does that spending align to the business strategy, and which parts are driving the greatest growth? The last thing you want is to cut a digital transformation program that is actually going to expand your online presence and deliver desired revenue growth.”
Differentiating ‘run’ costs and ‘growth’ spending
Wilson said Australian organizations should focus on how much is being spent on IT run costs, versus spending for growth. A granular understanding of where dollars are going can help IT teams and businesses make better trade-offs or reallocate funds towards business goals.
And it’s the growth spending that IT teams often need to work harder to protect.
“It’s the grow spend at the end of the day that is the easy one to cut,” said Wilson. “That’s because it’s not being used in the business today, so it’s the area people will look to pull back on. But it could have quite a material impact on what the business is driving for as a whole.”
Businesses are deepening their IT finance understanding
IT spending is increasingly being seen in Australia and around the region as a source of business value. “The days of IT just being seen as a cost centre are now gone,” Wilson said.
Finance teams are now “far more literate” in the full range of tech spending, he said, which is a welcome shift from the general ledger view of IT spending that has dominated in the past.
“There is a growing community of individuals in IT teams who have deep financial skills but also deep technical skills, who can have meaningful conversations with business stakeholders. We are seeing people like IT finance analysts adept in what technology spending profiles are, and who understand in much more detail how IT spend tracks back to the business,” Wilson said.
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Over the last two years, FinOps has developed from being an optional concept to think about — or that required explanation — to one cloud teams in most major organizations understand. There has even been a corresponding growth in FinOps related roles and certifications.
“Understanding and adoption are two different things,” Wilson said. “But we’ve seen over the adoption of FinOps practices formalized in most of our major customers across the APAC region, and when we talk to global peers, we are seeing a significant trajectory upwards.”
FinOps turning public cloud spending towards optimization
Public cloud spending is one area where IT finance smarts are being applied to find savings. This is particularly the case for organizations that are not cloud-natives, that have joined the “insatiable push to the cloud” over the last five years for benefits such as flexibility and agility but have continued to run public clouds as they would have run legacy data centres.
“Born-in-the-cloud companies know no different. They didn’t have legacy infrastructure, so they are the top end of town in terms of optimization of public cloud spending,” Wilson said. “But if you have legacy applications that are not architected for the cloud, not containerized, not microservices based, it will cost you more over time in that architecture in the public cloud.”
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This is impacting midsize Australian enterprises as they take longer to bridge a cultural and education gap around public cloud use. Wilson said larger organizations are moving faster, as they have the “greatest to lose and greatest to gain” from cloud cost optimization.
The marriage of financial management with cloud operations management that is FinOps is helping organizations see the optimization opportunities out of the public cloud investments and helping them fuel transformation programs without having to ask for more incremental spend.
Powering down nonproduction environments
More organizations could benefit from turning off nonproduction environments when not in use.
In contrast to running an on-premise data centre, where there is only a nominal cost advantage to turning off the likes of power or cooling overnight or on the weekends when not in use, the migration to public cloud means that organizations shift to paying on demand 24/7.
“It’s simple, but we see it time and time again,” Wilson said. “Turning those environments off can lead to material savings when you add them all up. You can take that run spend and reallocate it with no impact on the business; it’s a smarter way to use infrastructure to keep costs under control.”
Spending trends include security, digitization and cloud
Spending on information security and cloud computing are expected to be big ticket items featured on Australian IT budgets over the next year. This is being driven by large data breaches, which have focused attention on cybersecurity, as well as a continued migration to the cloud.
Wilson said organizations will also direct spending to improve digital customer journeys.
“These were fast-tracked during Covid, and while there’s been a pull-back over the last 12 months, as times get tougher, digital will help organizations optimise their cost base,” said Wilson. “Ultimately, delivering services to end customers is cheaper through digital channels.”
As indicated by the rise of FinOps, Wilson said organizations are likely to continue to evolve better understandings of the value of IT spending across the organization.
“If you understand it and you can measure it, you can make better and more informed decisions,” Wilson said.
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