Gartner Identifies Four Discrete Levels at Which IT Organizations Can Help Their Enterprises Optimize Business Costs

There are four discrete levels at which IT organizations can help their enterprises optimize business costs, according to Gartner, Inc. Gartner recommends that IT and business leaders use a cost optimization framework as a template when evaluating cost optimization initiatives.

Gartner's Four Levels of Cost Optimization framework include the two lower levels -- IT Procurement and Cost Savings Within IT -- focused on the reduction of cost within IT, while the two upper levels -- Joint Business and IT Cost Savings, and Enabling Innovation and Business Restructuring -- involve IT and the business teaming up to reduce operating costs.

Where appropriate, each level of this framework explores cost optimization issues by technology, domain, technology role, supporting facts and quantifications, estimates of savings and risk, and, in some instances, vertical industry. The broad definitions of the four discrete levels are given below (listed from lowest to highest):

IT Procurement -- True partnerships with IT vendors mean that each party benefits in the good times and makes joint sacrifices in times of economic uncertainty. Each year, IT organizations spend billions of dollars for hardware, software, IT services and telecommunications services. The manner in which IT organizations approach procurement issues will affect how much they can reduce spending to meet business goals.

Cost Savings Within IT -- A priority for many IT organizations will be to identify opportunities to reduce baseline IT costs, not just move them to another budget center. Where IT organizations focus is where they will be successful with cost savings.

Joint Business and IT Cost Savings -- Consider that the average IT budget is roughly 3 percent of revenue, while total operating expenses are 80 to 90 percent of revenue. If the enterprise is looking to reduce costs in 2009, IT managers should try to join IT with the business to reduce costs in business operating expenses.

Enabling Innovation and Business Restructuring -- As economic uncertainty passes, cost optimization will refocus on efforts to implement long-term process improvement and enable business structuring and innovation.

Gartner recommends that the framework is used as an organizing structure in which to track cost optimization programs as well as communicating the impact of cost optimization to the business. Mapping out cost optimization efforts to the framework can help to determine whether an organization's overall initiative is out of balance (all cuts coming from cost savings in IT, for example) or whether an organization has mixed IT costs with an appropriate amount of optimization techniques (such as innovation and business restructuring) that can prepare an organization for a return to growth.

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