Reduce. A word that many executives still hear, even in today’s world of growth- and transformation-focused strategies. Yet when focused on efficiency and optimization, “reduce” can be a powerful tool in a CIO’s transformation arsenal. Reduction is one of the five “R’s” that I discussed previously in CIOs: The New Corporate Rock Stars. It’s focused on the need to reduce waste and inefficiencies in operating and engineering processes and to continuously strive to produce “more for less” while optimizing spending, not simply cutting it.
And that’s key -- and the reason chief information officers should be energized by the opportunity to reduce --because it’s actually about spending better and smarter, while simultaneously increasing value from existing investment and driving innovation and business transformation. It requires creativity and agility -- and fresh thinking.
But how will they do this? By reimagining (not slashing) costs. As a threshold matter, CIOs should look at the efficiencies to be found in cloud-first operating models and through another of the five R’s -- reskilling the workforce. These two steps are now table stakes in a world emerging from COVID-19, because not only do they reduce costs, but they also help the organization meet the full potential of digital transformation.
As discussed in an Accenture report -- IT Power in an Uncertain World -- the CIO’s funding agenda now comprises a long list of priorities: investing in the digital experience for customers, workers and other stakeholders; investing in remote workforce tools; strengthening security infrastructures; in addition to the two foundational moves -- cloud-first and reskilling -- mentioned above. In surveying these expenditures, CIOs must adjust spending to generate space for reinvestment in IT capabilities that drive long-term growth, rotating the IT cost base to free up funds.
We call this zero-based transformation (ZBT) -- a value-based alternative to traditional IT cost reduction. As CIOs look to act to embrace ZBT to imaginatively reduce costs, they should focus on three essential moves.
First, they must develop a new spend profile for the company, looking to find the right IT spend, not the lowest. Key to this is not relying on historical spend patterns. CIOs must weigh the necessary tech investments for competing in volatile markets. Spend should be based on the disruptive value of technology, business priorities, growth platform, and current and future IT and business needs. CIOs can also take advantage of the step-change efficiencies that happen when using AI in the business and intelligent automation in IT. In addition to reinventing how work is done, these technologies can create a self-funding approach that generates cash for reinvestment.
Second, CIOs should create a variable cost structure, replacing benchmarks with value levers to enable more flexibility when achieving savings going forward. It’s important to know which levers to focus on to start, but flexibility is critical as levers will naturally evolve over time. By applying value levers in areas such as sourcing, application and infrastructure spend, one global energy provider beat benchmarks and identified 25% in potential savings to direct toward transforming the entire IT organization, making it faster, more flexible, and more proactively innovative.
Third, CIOs should increase value transparency ASAP, auditing all categories of IT spend and viewing it as a whole, through a service lens. That means going beyond creating cost efficiencies and optimizing IT spend versus value delivered. CIOs really need to seek out opportunities to realize material savings with “pain-free” reductions in consumption rates that make sense based on the business need. This is particularly the case when considering the need for live cloud workload optimization, something that must go hand in hand with increased usage of cloud-based services. The CIO at one consumer goods company with a history of managing to a median benchmark was skeptical that more savings were possible. However, looking at value levers, the company identified 12% of non-discretionary spend that could be repurposed as discretionary. This helped fund innovative technology offerings to support the business, spurring new growth through reinvestment.
Implementing more efficient cloud-first strategies, achieving savings through reskilling the workforce, and then pursuing ZBT in reimagining IT spending, allows today’s CIOs to “reduce” without a reduction in business and tech transformation outcomes. These considerations are part of the pressing demand on CIOs as they get accustomed to their new “rock star” roles at companies.