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Gartner at a Glance
World's
Largest
Community
of CIOs

1,000
Analysts

215,000+
Client
Interactions

10,000
Distinct Client
Organizations

74% of
Fortune 1000

75% of
Global 500

Clients in
90 Countries
Vertical
Coverage
in Nine
Industries

850 Media
Inquiries
per month

5,000
Benchmarks
500
Consultants

60+
Conferences
3,200
Consulting
Engagements

Spend Less, Drive More Value: How

Best-in-Class Organizations Do It
Jim McGittigan
Research Vice President

This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other
authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied,
distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.
2012 Gartner, Inc. and/or its affiliates. All rights reserved.

Barriers to Savings There Are Many

Politics and
Silos

Poor IT Cost
Transparency

Lack of
Accountability

Money

Low Tolerance
for Risk

Lack of IT
Credibility

Lack of
Good Ideas

Resource
Availability

Lack of
Process

Key issues
What are proven practices for optimizing IT
spending?
What higher maturity management practices
necessary to cut cost the right way?
What are you going to do next to improve
your IT cost optimization efforts?

Key issues
What are proven practices for optimizing IT
spending?
What higher maturity management
practices necessary to cut cost the right
way?
What are you going to do next to improve
your IT cost optimization efforts?

Optimization Opportunities Remain in

Every Area of IT
Differences Between Average and Best Performers
40% difference in cost

Overall IT Spend
Application Development

41%

52% difference in cost per function point

Application Support:

44% difference in cost per function point

Mainframe

58% difference in cost per installed MIPS

Unix server

47% difference in cost per server

Wintel server

37% difference in cost per server

Storage

46% difference in cost per TB

End-User Computing

44% difference in cost per device

IT Service Desk

45% difference in cost per handled contact

Wide-Area Data Network

41% difference in cost per device

Local-Area Network

43% difference in cost per active port

Wide-Area Voice Network

27% difference in cost per minute

Voice Premise Technologies

29% difference in cost per active extension

Everyone Does These Things to Cut IT

Budgets "Turn the Ship Slowly"

Gartner Research: During the Euro Crisis, Fight IT Cost Optimization Fatigue
With These Saving Strategies http://www.gartner.com/resId=1901914

Renegotiate contracts or make

coterminous
Reduce contract labor or cut
staff via organic attrition
Centralize, consolidate or create
shared IT services
Buy inexpensive IT to replace
older IT
Standardize IT or reduce
complexity
Cut maintenance and take
service risks
Reduce service levels
Cut travel budgets
Make across-the-board cuts

Using Gartners Four Level IT Cost

Optimization Framework

Gartner Framework for Cost Optimization

Deliver Different Units:
Reimagine business service
delivery with technology (e.g.,
improve customer experience,
new payment models).

Business Restructuring and Innovation

Process improvement, reorganization,
new methods

Reduce Number of Units:

Seek out opportunities to
eliminate/reduce application
footprint, evaluating
under-performing projects, ...

Joint Business and IT Cost Savings

Implement cost-saving technologies
with the business

Deliver Units Differently:

Evaluate changes to service
delivery across major domains
looking for consolidation,
outsourcing, virtualization, ...

Cost Savings Within IT

Identify opportunities to reduce IT costs

Reduce Unit Cost:

Identify opportunities to reduce
spend within existing vendor
contracts and service delivery
model.

IT Procurement
Get the best pricing and terms for your
IT purchases

Difficulty

Value
Four paths that can be taken individually
or together for compounding effect
8

Level 1: IT Procurement
Does the organization have consistent processes for IT
procurement and contract renegotiation?
How confident is the enterprise that it is getting the best
pricing and terms, and how does it validate those
assumptions?
Where is the
organization on
Gartner's IT Score
Model for Sourcing
and Procurement?

IT Procurement - Get the best pricing and terms

Everyone thinks they have the best deals ...
1

Paid for bundled

functions not needed

Missed latest
discounts

60 dedicated analysts
with specific expertise
Hardware
Software

Used outdated
discounting schedules

Telecom

Unit Price

SAP/Oracle/Microsoft
Paying for maintenance
on equipment not used

Needed a hybrid
solution, not
homogenous

Maturity assessment
IT Score for
Procurement
Review best practices
with analysts

Bought more
features than
needed

Utilize CFC service

RFPs templates

Volume

Over 2,500 proposal reviews each year, ~15%

hard-dollar savings uncovered in three out of
four contract reviews

Document review
Select the right vendors
Magic Quadrants
Vendor Ratings

11

Level 2: Cost Savings Within IT

Has the enterprise compared its IT costs against
Gartner's IT key metrics data?
Where are you currently working to save IT costs?
What are the biggest drivers of unanticipated IT costs in
the enterprise?

Where is the
organization on
Gartner's IT Score
Model for
Infrastructure and
Operations?

11

Cost Savings Within IT - Identify and prioritize

Benchmarks cover both
IT staffing and spending,
and IT processes and
capabilities "lowest"
cost is not necessarily
"best"

IT FTEs as a % of Total Employees

Below Average

Average

Above Average

Compare to the largest

repository of IT
benchmarks in the
industry with 5,500
benchmarks a year
across:
Industries
Sizes
Geographies
Balance short- and longterm opportunities

4.0%
(25th Pctl)

6.5%
(Average)

7.3%
(25th Pctl)

Do you know
where you stand
on each metric?
13

Level 3: Joint Business and IT

Cost Savings

How does the enterprise manage its application portfolio

and demand for IT projects and services?

How do IT leaders work with the business to identify opportunities

to jointly lower IT costs?

Where are the enterprise's best opportunities to work

with business stakeholders?

Where is the
organization on
Gartner's IT Score
Model for
Applications?

13

Use Gartners Pace Layering Model to

Govern Applications
Systems of Innovation New applications that are
built on an ad hoc basis to address new business
requirements or opportunities. These are typically short
life cycle projects (zero to 12 months) using
departmental or outside resources and consumer-grade
technologies.
Systems of Differentiation Applications that enable
unique company processes or industry-specific
capabilities. They have a medium life cycle (one to
three years), but need to be reconfigured frequently to
accommodate changing business practices or customer
requirements.

Systems of Record Established packaged

applications or legacy homegrown systems that support
core transaction processing and manage the
organization's critical master data. The rate of change is
low, because the processes are well-established and
common to most organizations, and often are subject to
regulatory requirements.

15

Level 4: Business Innovation and

Transformation
Seize Competitive Advantage

Transform the Business

"Seizing Competitive
Advantage" special report
highlights how enterprises
use IT to win.

Vertical industry research and

analysts
The Gartner IT Market
Clock and Gartner ITScore
help identify modernization
targets, and build actionable
road maps.
Deep expertise in business
process and risk management
to drive operational
excellence.
"Business value of IT" Key
Initiative translates IT benefits
into business value.

Hype Cycles and Emerging

Technologies research helps
identify game- changing
technologies.
The Internet of Everything
research explores how IT is
often becoming the business.

Today, a
competitive
advantage from
IT is rarely about
implementing a
4 single killer app

Shift the focus from

the cost of IT to
value of IT
15

Innovate
Research around mobile,
hybrid thinking, social
computing, idea
management, R&D
approaches and innovation
labs.
Toolkits add rigor and
discipline to innovation
processes.
Webinars, best practices and
case studies on business
and IT innovation in key
industries.

C-Level Executives
view information
technology as the
engine of growth

Key issues
What are proven practices for optimizing IT
spending?
What higher maturity management practices
necessary to cut cost the right way?
What are you going to do next to improve
your IT cost optimization efforts?

17

Provide Financial Transparency

and Implement a Proactive IT Cost
Optimization Process

18

IT Cost Optimization Requires Effective IT

Financial Transparency
Pillar 1:
IT Budgeting

Pillar 4:
Benchmarking

Pillar 2:
Investment Planning

Pillar 5:
Cost Optimization

Pillar 3:
Chargeback/Showback

Pillar 6:
Business Value

Running IT as a Business Requires

Effective IT Financial Transparency
18

Move From Traditional IT to a

Service Organization
Optimizes

Attributes

Role
Behaves As

Traditional IT

Service IT

Assets

Service Outcomes

Supply driven

Demand driven

Technology centric

Internal customer
centric

Functionally and
technically silo'd

Process based

Insulated and
monopolistic

Competitive and
engaged

Cost-obsessed

Service-obsessed

Steward

Service Partner

Cost center

External service provider

20

Service Based Pricing Requires Mapping

Asset View to Technical to Business
IT Assets and Resources
Personnel:
Salaries/Benefits
Staff Augmentation
Travel and Entertainment

Technical View
Window, Unix
and Linux
Server

Instance

Mainframe

MIPS

Storage

Terabytes

Voice and Data

Network

Port, Device
or User

End-user
Computing

End-user Device

IT Service Desk

Agent Supported
Contact

Application
Development
and Support

Function Points

IT Management,
Finance and
Administration

Allocated

Hardware:
Purchases/Lease/Rental
Maintenance

Software:
Purchases/Lease/Rental
Maintenance

External IT Services:
Consulting
Outsourcing

Telecommunications:
Data Communications
Voice Communications

Supplies Facilities
Total IT Budget

Business Services

Workplace Mgmt. Services

Collaboration Services
Professional Services
Connectivity Services
Business Protection Service
Application Services
Billing
Procurement
Financial Reporting
Human Capital Mgmt.
Sales/Customer Service
Product Development
Operations/Manufacturing

Technical View Can Be Used to Benchmark, Identify Cost Optimization

Opportunities and as Cost Drivers for Business Services
21

IT Cost Optimization Should Be a Discipline

Business imperatives evolve; new
technologies mature; IT assets reach end
of life; new service and delivery options
proliferate

Manage

Strategize

Best practices include:

Building cost goals into

performance management
Having an owner for cost
optimization

Optimize
Evaluate

Having high-level sponsorship

Execute

Tackling cost optimization

from a cross-functional
perspective
22

Leverage Four Simple Steps to

Build an IT Cost Optimization
Program

23

IT Cost Optimization Program

Formulation
1
Establish Baseline

2
Identify
Opportunities
3
Develop Strategy

4
Track Benefits

Capture all IT service delivery costs current year and five year forecast
Categorize by asset class HW, SW, personnel, services,
occupancy costs, and so on
Allocate into services establish unit cost baseline for market and
business tests
Analyze spend gaps against market peers
Identify high-value opportunities for cost reduction, service
improvement, and business enablement
Assess benefit against risk to change (as well as time, investment)

Develop strategy and road map for most viable opportunities

Analyze organizational change needs to manage people impact
Create communications plan

Create an IT cost optimization (ITCO) program office

Monitor, measure, and report
Identify opportunities to accelerate while managing out risk

25

1. Establish Baseline
Compare your IT budget against the Gartner IT Key Metrics
Data industry averages.
- Get a personalized IT key metrics
comparison report.
- Compare your IT spending and
staffing metrics with Gartners
Industry averages.
- Establish an external baseline
comparison to improve transparency
and communications.

High performing IT organizations regularly leverage external

benchmarking and consider best practices of like organizations.
25

2. Identify Opportunities &

Assess Viability
For each opportunity generated:
What's the upside?

?
Costs,
Time, and
Risks

Is it worth the effort?

Benefits Benefits

Potential Benefit:
How big is the saving if the action is implemented and
how does it affect cash flow?

Business Impact:
What impact will this have on the business?

Small

Medium

Large

Negative

None

Positive

>18 months

6 to 18 months

<6 months

High; staff
redundancies,
and re-engineering
of processes and
structures

Moderate; limited
changes in roles,
structures, and
processes

Low; no staff
reduction, nor
changes in
organization and
processes

High; impacts OS,

DB, middleware,
and applications

Moderate; impacts
few components of
the architecture

Low; little more

than "moving
boxes"

High

Moderate

Low/None

Time Requirement:
Can you capture the savings in this fiscal year?

Degree of Organizational Risk:

Will your leaders ensure the changes are made?
Is your organization capable of adapting to the changes?

Degree of IT Technical Risk:

Is there a risk that the change will undermine the ability
of your systems to deliver?

Investment Requirement:
Does the change require a large upfront investment
before savings can be captured? Is the organization
willing to make an investment at all?

3. Develop Strategy & Ready

Change Program
Is the risk worth
the reward?

$8.0M

Application
Portfolio
Optimization
Improve
Application
Delivery

Implementation
Risk/Time

Outsource Application
Development and
Support

$5.7M
$6.0M
$1.5M

$1.5M

Improve ILM
and Data

Reform IT
Governance
and Demand
Mgmt.

$8.0M

$10.5M

Optimize
Infrastructure
Service Delivery

Optimize End
User Support

$2.0M

Re-compete Data
and Voice Networks

Opportunities likely
taken as natural part
of business

Benefits/Cost Savings
Note: All figures are in millions of dollars
28

4. Track Benefits
Large Program Benefits Predicted

Increase
Virtualization

Mature
S/W Asset
Mgmt.
Practices

Mature
Key ITIL
Processes

Unanticipated
Business Changes

Rationalize
Applications

Lack of Org.
Change Mgmt.

Deploy
Info. Life
Cycle
Mgmt.
Renegotiate
S/W

Poor Estimation
(Benefit Size, Investment)

Complex
Technical Solution

Often Smaller Than Predicted

Program Benefits Realized
29

Key issues
What are proven practices for optimizing IT
spending?
What higher maturity management practices
necessary to cut cost the right way?
What are you going to do next to improve
your IT cost optimization efforts?

29

Where Are You Currently Focused?

Cost
Framework

IT
Procurement

Cost Savings
in IT

Joint
Innovation
Business and and Business
IT Cost
Restructuring
Savings

Next 6 Months Some OneTime

Some OneTime

Minimal

None

6 18 Months Significant

Recurring

Marginal

Marginal

18 - 36
Months

Some
Recurring

Recurring

Substantial

Significant

36 60
Months

Marginal

Recurring

Substantial

Substantial

Gartner Research: Decision Framework for Prioritizing Cost

Optimization Ideas http://www.gartner.com/resId=978212

32

Sample, Key IT Cost Optimization

Opportunities
Est. Savings
(Annually)

Customer
Impact

Time to Realize
Savings

Organizational
Risk

Technical
Risk

Investment
Required

1M

Negative

>18 months

Medium

Medium

Medium

Data Center
Consolidation

750K

Positive

6 -18 months

Medium

Medium

Medium

IT Service Management

1.5M

Negative

> 18 months

Medium

Low

Low

Sourcing Management

500K

Positive

6 -18 months

Low

Low

Low

Consolidate IT
Management Tools

250K

Positive

< 6 months

Low

Low

Low

Asset Management

2.5M

Negative

6 -18 months

Low

Low

Low

Service Desk
Management

500K

Little/None

6 -18 months

Medium

Medium

Medium

1M

Negative

> 18 months

Medium

Medium

Medium

Desktop Virtualization

450K

Negative

6 -18 months

High

High

High

Print Fleet Management

950K

Little/None

6 -18 months

Low

Low

Low

Opportunity

Demand Management

Application
Rationalization

Total Potential Savings Estimated 9.6 M

33

Recommendations
Be proactive when managing IT cost optimization.
Decide where you are in the cost optimization journey
and outline what you will focus on next.
Recognize that opportunities for cost optimization still
abound in all areas of IT.

Use best practices to optimize costs both within the IT

organization and within the business.
Look beyond tactical actions for biggest savings.
Ensure there is accountability for achieving the targets
that you set.

34

Related Gartner Research

IT Cost Optimization Should Be an Ongoing Discipline
Jim McGittigan, Sanil Solanki (G00247911)
Run IT as a Business Using Six Pillars of Effective IT Financial
Transparency
Jim McGittigan (G00238696)
IT Metrics: IT Cost Optimization: Vertical Industry Perspectives
Kurt Potter Barbara Gomolski (G00232994)
During the Euro Crisis, Fight IT Cost Optimization Fatigue With These
Saving Strategies
Kurt Potter (G00229672)
IT Cost Optimization Round 2: Strategic Shifts and Doing Less With Less
Kurt Potter (G00205937)
IT Metrics: New Economic Rules of IT Spending and Staffing Metrics
Kurt Potter (G00217561)
33

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