Strategic Cost Optimization to Drive Sustainable Growth and Innovation  for Mid-sized Enterprises
Feb 03, 2023

Strategic Cost Optimization to Drive Sustainable Growth and Innovation for Mid-sized Enterprises

PRIYANKA RAJAKUMAR
ASSOCIATE MANAGER - BUSINESS MANAGEMENT

Flexible and efficient IT operations are key to the sustainable and controlled total cost of ownership (TCO) for enterprises with limited resources. Enterprises are striving to remain buoyant in an uncertain economic environment. According to Gartner, Midsize Enterprise (MSE) CIOs that implement effective cost optimization practices will be 65% less likely to face general budget cuts by 2025. This pragmatic approach focuses on cost reduction and performance improvements as the cost savings from these initiatives are reallocated to fund the organization’s strategic and digital initiatives.

Performance management and cost optimization are imperative strategic initiatives aimed at getting more out of less. To achieve cost-effectiveness in IT spending, enterprises must minimize surpluses and streamline operations. However, cutting costs is only half the battle. Best-in-class enterprises take a pragmatic approach to drive up performance while optimizing costs. Enterprises are attempting to gain insights into the financial and operational consequences of their digital transformation initiatives. By reinvesting freed-up resources in digital capabilities, opportunities, and initiatives, these enterprises will continue to succeed over time.
CIOs need to provide visibility to their businesses on how IT spends on infrastructure and software should justify costs and value delivered. Here are some factors an MSE should consider to be successful in executing performance and cost optimization levers.

Visibility into technology spend

To be able to optimize technology expenditure and achieve the right return on investment (ROI), we first need to understand the enterprise spending patterns, consumption channels, and cost overruns. The lack of a comprehensive and accurate view would impede cost optimization efforts. CIOs should also pay close attention to annual hardware, software, and service maintenance contracts. Due to a lack of transparency, many contracts are automatically renewed without the opportunity to negotiate better agreements or examine more cost-effective alternatives. Being able to modify spending patterns enables MSEs to capitalize on potential opportunities while also protecting investments.

Portfolio rationalization and performance management

A technology portfolio consists of products, internal applications (the software utilized by the organization), services, and hardware (the infrastructure on which it operates). According to Gartner, MSEs generally spend about 4.3% of their revenue on technology. Software consumes 17% of that cost, while hardware consumes 12%. Infrastructure that is non-standardized and ineffective increases technical debt, which stresses the overall budget, service performance, and job satisfaction of IT workers. Poorly managed application portfolios provide poorly managed data that cannot be used as profitably as possible. The CIOs must make plans for effective and strictly regulated software management that take into account defined governance, the available budget, and end-of-life needs. 

Maximize the value of your IT personnel 

While assessing performance levers, the right choice of service and operations models enable the delivery of services aligned with the industry. MSEs must maximize the effectiveness of valuable IT skills and resources, with 38% of their OpEx budgets devoted to manpower (according to a Gartner report). A comprehensive cloud strategy also provides the opportunity to increase workforce flexibility by reducing or eliminating time spent by employees on low-value tasks.  

Improving data management

Data is an enterprise-wide asset and should be regarded and handled accordingly. By enabling data utilization across the organization, the business value may be realized faster and more precisely, potentially creating new channels of growth. According to a Harvard Business Review survey, cost-effectiveness is the key advantage of a data-driven organization. The key to MSEs transforming themselves into intelligent and data-driven enterprises is by having a greater understanding of customer needs and expectations, making tech-driven decisions, and enhancing process performance and cost efficiencies. Organizations can implement a data maturity strategy that progresses from opportunistic to systematic and then transformative in its use when they become strategic about data and insights. MIT Sloan Review states that this data strategy may save up to 25% of the company's revenue.

Don’t just cut, optimize, and transform!

Despite the short-term and immediate boost that cost-cutting may provide to the bottom line, enterprises will probably need to spend more money in the future to make up for the lost ground and stay relevant in the industry. IT spend visibility is key to cost management and optimization. Hence, enterprises first need to create a comprehensive view of enterprise costs and spending. Strategic cost optimization focuses on performance improvement, unlocking transformational, technologically driven growth potential. Mid-sized companies might achieve more by uncovering cost inefficiencies, revisiting operations, and consolidating and examining a variety of data sources. Further, reinvesting these funds will enable MSEs to maximize business value and accelerate their digital transformation efforts.

Microland’s Strategic Cost and Performance Management (SCPM)

Strategic Cost and Performance Management (SCPM) by Microland is a consulting service that assesses an organization's IT estate, which could comprise of Cloud, Apps & Data Centers, Networks, Cybersecurity, Service Management, and Digital Workplaces, with an emphasis on increasing performance and optimizing cost. The SCPM strategy focuses on value optimization, making it easier for business executives to prioritize avenues of cost optimization and channel the savings to initiatives that can drive growth. 

While the focus is primarily on cost and performance optimization of IT operations through an ‘Optimize and Stabilize’ approach, we also assess ongoing transformation initiatives and recommend additional transformation themes on Day 1 that can be embedded into the transformation roadmap over the consulting engagement.

With the help of our qualified experts, businesses may take advantage of innovative and evolving digital business models as they address the need for efficiency or budget constraints. 

Over the years, Microland’s SCPM Consulting engagements have delivered 30% to 35% cost savings for our customers. As an example, one of the world’s largest tire and rubber companies was able to achieve benefits of over a million USD in business transformation, with savings of over 40% project management costs and 20% reduction in technical efforts. As part of this engagement, Microland carried out a network assessment leveraging its in-house modular platform, the Network Assurance Platform (NAP). The savings from this initiative were made available for re-investment in future transformation initiatives such as AIOps and improved end-user experience, thus increasing the overall value realized for the client.