Today, IT continues to boost key business activities, but quality and robust IT services do not come cheap regardless of the size of your company. However, the amount of money you spend on your IT services does not equate to the value you get out of it.
There is considerable overindulgence in the IT industry. Firms devote outrageous amounts of money to technologies and tools that they don’t need because they are trendy and competitors use them.
In fact, in 2019, the globe spent $3.8 trillion on IT. Caused by the effects of COVID-19, which prompted corporations to undertake cost-cutting initiatives, that number fell to $3.6 billion in 2020. This shows that there are areas of over-provision in different IT departments with vast potential for IT cost optimization.
Your job is to ensure that your IT system adds value that exceeds your investment. In addition, there is no one-size-fits-all strategy that works for every single company. It would be best if you personalized your IT infrastructure to suit your needs, instead of relying on the moves by your competition. For example, do you need to employ IT staff augmentation, or maybe employ the services of a managed service provider?
However, cost optimization should not be confused with cost-cutting. While the two concepts share some similarities, cost-cutting is a subset of cost optimization. Therefore, you cannot implement a cost optimization strategy without including plans that call for cost-cutting either in the IT department, other Business Units (BU) or both.
The Difference Between Cost-Cutting and Cost Optimization
Cost optimization is the practice of constantly assessing and adjusting all resources that leverage your business’s processes, infrastructures, and workloads for greater customer satisfaction, higher revenues and lower costs.
Cost optimization suggests that companies employ an amalgamation of IT and business cost optimization to achieve greater business performance through savvy technology solutions.
On the other hand, cost-cutting is when a firm takes deliberate actions to reduce expenses and increase profitability. When organizations undertake cost-cutting strategies, they do so with the intent of seeing immediate results.
Briefly, let us look at the common differences between cost optimization and cost-cutting.
The time factor
Cost-cutting typically involves one-off actions to reduce costs and realize results immediately, such as reducing the number of employees in a department. However, with cost optimizations, the efforts are consistent, gradual and impacts may be felt in the long term.
With cost-cutting, the primary purpose is to scale back on financial expenditure, for instance, during a financial crisis. Whereas with cost optimization, the goal is to maximize value from IT infrastructure. Management wants to ensure that employees take full advantage of every IT tool’s capability.
An excellent example of both strategies is reducing employees’ salaries and automating several processes such as customer support. By lowering wages, your costs will instantly fall, whereas automation may seem costly to pilot. Yet, in the long run, there are several costs a firm won’t incur while enjoying outcomes like faster speed, minimum handling time and customer satisfaction.
IT cost optimization strategies
Now that we know the difference between IT cost optimization and cost-cutting let us look at the best strategies a firm can employ to realize successful cost optimization.
IT staff augmentation
IT staff augmentation is a corporate outsourcing approach for manning a project and fulfilling business objectives. IT staff augmentation involves assessing the current workforce and deciding which supplementary skills are necessary to achieve said objectives.
By incorporating a staff augmentation system by contracting with IT service providers or independent contractors, firms can boost their flexibility, resolve brief capability shortfalls and quick access to skill sets that are needed urgently.
Furthermore, IT staff augmentation has a simple price structure (fee times hourly wages) and can be adjusted easily.
Staff augmentation is a powerful strategy because a firm can avoid all the costs of permanent employment, such as interviewing, onboarding, training, wages, and additional benefits.
Hiring a managed service provider
Organizations are phasing out physical storage and hardware infrastructure components, ultimately removing the expenses associated with their ownership. In addition, using managed services means firms can now pay for services on demand instead of fixed fees for services they might not need or utilize. Updates are also automatic, quick and frictionless, without requiring any storage capacity like physical infrastructure.
You should note that while managed services require significant initial investment capital, the long-term benefits far outweigh the costs.
Amalgamate your company’s data centers
The overhead cost of running a conventional data center will soar as a business expands its operations. As a result, several IT companies are shifting to a data-center switching model. Cost reductions from data center transformation and integration measures typically vary between 10% and 20% of a traditional data center budget.
It is critical for an organization to recognize how IT services are being provided and the corresponding IT operations costs. Do you recognize areas of provision, or is the technology being fully utilized? Liaise with the CFO and the rest of the financial team to fully assess the budget, expenditure, assets and revenue. This level of accountability will allow you to identify areas of waste both in IT and other business units so you can create appropriate strategies.
Review and clarify the eligibility for hybrid services
When businesses can utilize the permissions they acquired for their on-premises servers/applications in the cloud, they get hybrid privileges. But, of course, not every license qualifies for hybrid perks, and understanding and adopting them correctly might be difficult.
It all comes down to your ability to gain an operational understanding of our software assets or get professional guidance. In addition, you need to ensure that your company takes full advantage of its benefits and maximize the value of the cloud resources you regularly pay for.
Once you consciously assess your budget, IT needs, processes, and the skill sets possessed by the individuals in your organization, you will realize that there are several opportunities for cost optimization.
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For the last five years, we’ve provided tremendous development support for small- to medium-sized businesses worldwide. We are powered by an experienced in-house team and an extensive network of freelance creative professionals who share a passion for fresh ideas, new technology, and contributing to the success of our partners and their clients.