IT Cost Levers

Caught this post on Apptio’s blog re: optimizing IT budgets. It summarizes a Gartner report — I’ve seen earlier versions — which is interesting and Apptio will provide the report if you provide them your contact info. The analysis:

…breaks down IT spending and identifies four best practices for strategic IT budget management. Of these, the recommendation to “follow the money,” is of key importance to IT leaders. Knowing where the IT budget currently gets spent is the most important part of your budget strategy.

The post then highlights the top four areas of spend, which typically make up around two-thirds of an IT budget: Data Center, Application Development, Application Support, and End-User Computing.

One point: the separation of mobile topics into the categories of “End-User Computing”, “Data Networking”, and “Voice Networking” is both useful and potentially confusing. It’s useful because it reminds us that just because we get billed for mobile in one package, we should decompose the costs like we would for other capabilities. It’s worth the time to break bundled costs down: you may need to differentiate service levels among your customers or find that mobile is providing capability that makes other options redundant (e.g., mobile hotspot vs. reimbursing WiFi/home cable subscriptions).

It could be confusing because the costs aren’t as easily severable as other capabilities. In other words, trying to economize on a data plan may mean we lose credit on voice or device costs. In fact, the model itself is very PC-centric in that way: each of these cost drivers is typically provided in separate invoices or line items. Even worse, if you do try to account for it in a model, I’ve found my telecom staff can get deep into the weeds trying to model those last few mobile dollars.

New Leader Focus Area — Costs and Pricing

Per an earlier post (here), I’ve been thinking a lot about what goes into taking over a new organization.  Considering the economy these days, this may happen to more of us!   

Anyway, the principle that costs and prices almost always decline over time is a reasonable foundation for looking at one’s competitive and operations health.   Below are six questions from the HBR New Leader article I originally referenced which help to focus the analysis:

  • How does your cost slope compare with your competitors? In other words, are your costs lowering or rising more or less quickly than your competitors?
  • What is the slope of price change in your industry right now, and how does your cost curve compare?
  • What are your costs compared with competitors?  I’d also look at prices as well… competitors with prices eroding faster/slower than me should tell me something about the sweet spots in the value chain, offerings most valued by the market, etc.
  • Who is most efficient and effective in priority areas?  A pretty generic suggestion.  Looking at relative pricing and what that tells you about the market should give hints about “priority areas.”
  • Where can you improve most, relative to others?  Look hard at the capabilities you actually have or could build quickly.  Avoid immediate focus on topics that you can’t change.
  • Which of your products or services are making money (or not) and why?  Don’t automatically trust the received wisdom on who makes and loses money.  Invest some time and money is getting REAL numbers and answers.
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