Gartner: Reducing IT costs... without crippling competitiveness

In an uncertain and pressurised economic environment, organisations often face the challenge of realising immediate IT cost savings. When faced with the challenge, CIOs need to determine how to approach cost cutting in the least damaging way to the medium- and long-term health of the business.


This is a contributed article by Chris Ganly, Research VP at Gartner.

The past 12 months have upended some of the most entrenched business routines; the combination of social distancing and lockdowns have transformed working practices for organisations. Their impact has also squeezed bottom-line performance, which in turn has driven the need to enhance competitiveness. No area of a business is immune to these pressures, including core IT functions.

The load is therefore on the shoulders of CIOs to resolve the central conflict – how to reduce IT expenditure while also protecting the current and future health of their business. Some circles are particularly resistant to being squared – this one can appear immutable. Gartner has consequently looked at the issues involved and created a guide to CIOs and IT leaders to delivering meaningful savings without compromising business continuity.

The 10 rules of rapid IT cost reduction

To help under pressure CIOs and IT leaders, Gartner has drawn up a 10-point plan that is especially designed to support a rapid but effective path to responsible IT cost reductions.

  1. Target immediate impact: The speed needed to identify savings increases when there's urgent demand to reduce expenditure, so look for costs that can be quickly extracted. Ideally, attempt to eliminate, reduce or suspend items that will impact sooner rather than later, but within months not years. Examples include expenses that are incurred and paid monthly or quarterly, on a “pay as you go” basis, rather than annually.
  2. Reduce, don't freeze: For lasting impact the aim should be to reduce expenses, not just freeze them. The focus should therefore be on costs that can be minimised or eliminated, not just frozen out for the current period, to reappear again further down the line.
  3. Cash is king: Target items that will have a cash impact on the profit and loss statement. Savings on software and infrastructure rental can have a real impact, as opposed to reducing on-premises software licenses or owned hardware assets.
  4. Target unspent and uncommitted expenses: Look for unspent or uncommitted expenses, as these can have an immediate impact, and evaluate contracts and commitments for renegotiation and termination clauses.
  5. Be holistic and address total opex and capex costs: Typically, operating expenditure (opex) is the easier to control but capital expenditures (capex) can also be controlled. Gartner said that 23% of the average IT budget is spent on capital so ensure the complete range of IT spend is considered when looking for rapid reductions. Also, remember that delaying or eliminating capex can affect related opex.
  6. Plan to do it once: Most organisations don't cut deep enough the first time, so need to revisit and do it again. This creates a destructive and unproductive cycle of uncertainly, effort and lost productivity, so cut “hard enough” the first time and only do it once.
  7. Sunk costs are irrelevant: It is commonly said that “sunk costs are irrelevant” but should current or future expenditure really be considered without relation to past spending? From a rapid-reduction standpoint this is true but thought should still be given to the cost benefit of stopping “in-flight” projects.
  8. Address discretionary and nondiscretionary cost: Discretionary spending can often appear the “easier-to-cut” option. There may, however, be opportunities to reduce usage, service levels and even consumption levels of nondiscretionary, “run the business” expenses, such as infrastructure and operations (I&O).
  9. Tackle both variable and fixed costs: Fixed costs, such as office rent, subscriptions and payroll, remain constant regardless of activity or volume, so focus on elimination. Variable costs, such as communications, contractors and consumables, vary with activity or volume. Here, the focus should be on both reduction and elimination.
  10. Inspect accounts: Define the cost base, both the profit and loss, and the balance sheet. Work with your finance partner to obtain a solid view of the details, such as expense accounts and key balance sheet items, including expense accruals and prepayments. Use these insights to identify reductions in opex and capex costs, which will immediately have an impact on reported financials.

Don't deliver twins

It's important to remember that a saving isn't a saving if it just pushes costs to another part of an enterprise. Moving cost from the IT balance sheet to another business unit not only fails to deliver the core objective – reduced overall expenditure – it also risks creating a twin IT system out of sight of the CIO. The result: duplicated effort and deficient managerial control, which can both drive up costs.

It's equally important not to cut budgets on projects that are projected to deliver value and long-term growth, not matter how good the savings might at first appear. Trimming off the green shoots of recovery runs contrary to fostering stability and growth: there are some budgets that should remain sacrosanct. Bear in mind that many cost reduction ideas require some element of investment to make them happen, which can obscure the difference between the right costs to cut and the easy costs to cut.

And finally, monitor the impact of your decisions. What might appear to be a good idea at the time could have unforeseen consequences down the line. Cost cutting can be a difficult exercise for CIOs but a managed, monitored and sustain approach will pay dividends.