Pete Wilson, General Manager, Apptio Asia-Pacific, says Australian companies can bring unchecked tech spend under control without costing CIOs.
As the economy continues to come to grips with the impact of inflation, Australian businesses have landed in a cost reduction era.
Why? After two years of almost zero investment growth throughout the peak of the COVID-19 pandemic, companies splurged on tech. In many cases, IT budgets increase significantly as temporary measures – namely online meeting apps – were quickly replaced by full blown and expensive Digital Transformations.
Technology spend, and especially cloud consumption, went unchecked. Analyst firm Gartner reported a 31.8% year-on-year growth in public cloud services – Australian companies indulged, with spend hitting AU$18.7 billion in 2022.
This happened because there was no blueprint for bringing work from home (WFH) policies to life in a matter of months for a company’s entire workforce. As a result, many organizations over-subscribed to apps, and footing the bill became status quo as businesses had to quickly adapt to a fully remote workforce.
As we moved into 2022, technology needs plateaued. After six months, boards and management teams were hit by a wake-up call; they realized they needed to get their (over-)investment under control. This is now accelerating amid a swathe of macroeconomic challenges.
For many, the knee-jerk reaction has been to stop all spend. ‘Do more with less’ has arguably never been so profound.
However, Gartner VP analyst Stewart Buchanan, said: “It is paramount that CIOs continue to have access to funding. Without money for transformation, costs cannot be restructured. Many organizations mistake inaction for a cost saving but instead accumulate technology debt.”
Buchanan rightfully argues: “In response to the current economic turmoil, organizations are using digital technology to realize operational efficiency and cost savings and to transform their company’s value proposition, revenue and client interactions. This means a steady IT budget is necessary to push these digital business initiatives forward.”
The $1 million question – or in the case of a large enterprise, the $100 million question – is: how can I reduce technology spend quickly without hurting business?
To answer this question with urgency, companies need to be thinking both cost reduction and cost avoidance.
Discretionary cloud spend and end-user compute are two key causes for financial waste. Some of the lowest hanging fruit that can be cut from the branch and result in immediate cost reduction include excess mobile services and end-user device leases (and associated software), multiple collaboration apps and general cloud compute and storage.
Another culprit is poor asset allocation and use of fixed spend. For example, a dozen on-premises data center servers used to 20% of their capacity can be consolidated, freeing a large portion of excess compute to be used for future projects, effectively avoiding additional technology spend as the company expands.
Organizations miss the opportunity to bring these costs under control because they become micro-focused on challenges at hand, rather than taking a long-term view to benefit broader long-term business priorities.
The trifecta for value realization
With so much pressure to reduce cost, cutting discretionary spend and optimizing fixed spend are fundamental to achieving the full value of tech investment. There are three components to getting there.
The first is cost transparency. It’s simple: you can’t measure what you don’t know. Companies unaware of what they are spending or where they are spending it, will never be able to determine what value they’re returning. Many won’t even realize they have various departments using multiple cloud services providers for similar purposes, with duplicate contracts draining the bottom line.
With cost transparency, organizations have unwavering visibility into spend segmented by department, vendor, project, running costs and more. That allows for analysis of trade-offs; the ability to quickly identify unwanted discretionary spend that can be turned off today to save tomorrow – or equally optimize fixed spend today to avoid additional spend tomorrow.
The second factor is consumption-based costing. To get value, someone needs to take ownership. Historically, organizations leaned on assumptive costs because it’s easier to do, every department fronts an equal share of funds to pay for a service.
But it’s not a fair method. If HR uses 70% of a $5m service, the other 10 departments shouldn’t be expected to cover it.
Executive ownership – which takes someone to lead the value conversation, monitor reduction targets and analyze use cases – is cornerstone to building trust across teams, and ensuring investments are delivering their expected returns. Without ownership, value becomes grey matter.
The third component of value realization is the unit rate conversation. If your cloud spend goes up 20%, that’s not necessarily a thing, especially if the figure aligns with forecasts. If cost exceeds budget and unit rates increases, you’ve got a problem. It means you’re spending more than expected and commercial terms in contracts are less than ideal. However, if cost went up 20% but the unit rate stayed steady or dropped that’s a direct reflection of value.
While it’s difficult to predict how severe and for how long today’s macroeconomic challenges will burden us, companies that ask why tech spend is important, who it’s important to, how it aligns to strategy and how that success is measured, will establish a basis for generating consistent value for every technology dollar spent. Consequently, those organizations won’t be forced to cut spend like many of their competitors and instead get more bang for their buck.
