CIOs are uniquely positioned to help organizations create value by improving efficiency as enterprises balance the need to modernize amid a mixed economic environment. To stay ahead of the curve, organizations have to rethink how they manage technology spending and truly transform their IT operating model.
Recent CIO research found that 31% of respondents report that a key focus of their role was cost control– one of the top five responses in fact. But after years of “doing more with less,” cost-cutting alone eventually leads to a dead end.1
So, how can IT leaders solve this challenge? Flipping the approach from cost-cutting to value creation can be a strategic start. This change in perspective can help CIOs improve systems performance and free up investment funds.
Typically, IT leaders stick closely to budget plans made in previous years. Historically, such continuity ensures investments are maintained and leveraged, and long-term strategies are brought to fruition.
But it can also make it difficult for CIOs to respond to market or technological disruptions or capture opportunities. Improving costs is a smart way to protect existing investments and pivot to new technologies like generative artificial intelligence (GenAI) that are set to define the future of business.
As organizations continue to adapt during uncertain times, organizations need to be significantly disciplined in terms of spending.
Trends for 2024
The EY 2024 global economic outlook calls for sub-trend growth but no recession, dueling headwinds and tailwinds, increased productivity with help from AI and a cautious pivot by central banks.
Beyond tight controls on spending, organizations can also prepare for their next wave of growth as they strive to operate from a position of strength.
This calls for an acceleration in innovation. According to an EY report, organizations will enter “a super-cycle of technology-enabled innovation, particularly that driven by generative AI, requiring significant investment.”
In short, money must be managed to enable CIOs to reimagine the enterprise. But that can be easier said than done.
Pointers on reaching peak cost performance
“There’s often a lot of complexity across the IT organization. Start by simplifying the tasks in improving value and minimizing costs. The service catalog, which is comprised of all the different service potential areas for an IT group, is a good place to start evaluating which offerings are actually creating the most value, and which are adding unnecessary costs and complexity,” says Steven Kauderer, EY-Parthenon Principal, Financial Services Enterprise Transformation Leader, Ernst & Young LLP.
Using the right metrics is essential to correctly assessing cost and value. But sometimes meaningful metrics don’t yet exist, as is the case with AI today.
“Leveraging new metrics around AI will be critical and is something we are seeing clients ask about. But again, all metrics should center on value, cost and simplicity,” says Kauderer.
The goal is to correctly assess value vs. cost for each offering in the IT service catalog. Besides using metrics in these evaluations, the following pointers can help extract or illuminate additional information or perspectives to aid with cost improvement efforts.
- Perfect world comparison: “We think of this exercise as reverse engineering the service catalog, or comparing the reality to zero-based design, wherein we compare an organization’s current IT operations and tech investments with what would be ideal if it were built from scratch today. This outside-in view can illuminate gaps, shortcomings and other issues that may no longer offer value, or could if properly addressed,” says Kauderer.
- Partner ecosystem efficiency expansion: Re-evaluate vendor agreements and policies and renegotiate contracts to improve costs further. “Enhancing vendor relationships is a key area for cost improvement in everything from pricing to long-term value creation,” says Kauderer.
Learn more on how to create value by reimagining your enterprise.
The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY.
1Foundry, “State of the CIO” https://foundryco.com/research/state-of-the-cio/, 2024.