Changing the Cost Structure of IT Will Become a Business Imperative for Most CIOs

IT departments are struggling to keep pace in a world that is moving at breakneck speed, and the IT industry is entering a period in which it will not only be possible to change the cost structure of IT, but it will be an imperative for many CIOs, according to Gartner, Inc.

Today, IT spending is heavily weighed by fixed costs. Almost two-thirds of the average IT budget is fixed, at least in the short run. IT outsourcing is the most well-known way to move fixed costs to variable, but it is not the only technique organizations will employ. Gartner analysts said they expect some organizations to come up with new models, such as joint ventures and shared data centers as a means to reduce the fixed costs associated with IT.

Gartner said that fixed-cost models burden organizations with assets and large amounts of depreciation, making the business less responsive. The trend toward user provisioning of IT requires a more flexible acquisition model that gives greater agility in both IT and the business.
Going forward the burgeoning number of technology as a service (TaaS) offerings that will emerge during the next five years will give firms new acquisition models. In the area of staffing, reducing the number of salaried IT professionals and shifting to a model of using more contract labor will move more fixed costs to variable costs while compensation changes – such as putting more pay into the performance-driven category – can also help reduce fixed costs.

Prominent industry trends such as TaaS and the need for greater business flexibility will increase the importance for more variability and IT leaders need to recognize and balance the strengths, weaknesses, opportunities and threats of variable cost structures. Gartner expects that some of the biggest challenges will come from the businesses internal capabilities, such as demand management budgeting and forecasting and vendor and asset management, all of which will need to evolve to exploit new acquisition models.

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