Optimize Tech Spending for Better Resilience
When the Deloitte Global Cost Survey was published in December, businesses around the world were reaping the benefits of one of the longest periods of economic expansion in history—but they were also cautiously anticipating disruption. While only 6% of respondents to the 2017 version of this biannual survey considered digital disruption one of their biggest external risks, in 2019 digital disruption soared to the top of the list for 61% of respondents.
Today, as economic and digital factors collide in the midst of a pandemic, companies can prepare for the potentially tumultuous journey ahead by recasting technology spending as an investment strategy that delivers value by enabling transformation to improve future performance and market position.
Continually optimizing technology spending can serve businesses well during both crises and boom times, helping them realize savings, reduce technical debt, and transform business models without sacrificing capabilities or risking quality. This requires IT to have mature business-aligned IT budget planning and financial governance processes, a standardized IT cost structure and model, and a cost analytics toolset to track and monitor spending for more informed decisions.
The Deloitte Global Cost Survey shows that 71% of global organizations were already planning cost reduction initiatives prior to COVID-19, with 66% targeting reductions of 10% or higher. Among U.S. companies, 84% said they were most likely to make cost reductions, while the likelihood was significantly lower for those in Asia-Pacific (70%), Europe (66%), and Latin America (65%).
But the cost-management mindset had undergone a significant change. In 2017, companies around the world were managing costs in a “save to grow” model, pursuing cost savings to fund growth strategies in an improving economy. In 2019, the survey indicates this was evolving to a “save to transform” model in which cost reductions fund business model transformation with strong potential for returning significant value—via investments in robotics, AI, and the cloud that deliver dramatic improvements in competitiveness, performance, and operating efficiency, for example.
In Deloitte’s recent State of AI in the Enterprise survey, 74% of respondents ranked “making processes more efficient” and “lowering costs” as top desired outcomes of AI efforts. And digital continues to be increasingly accepted as a standard business practice around the world, in no small part because of its proven potential for cost cutting and return on investment.
A Long-Term View
With a technology spending optimization strategy, leaders can take a long-term view on business growth and make bolder, technology-driven business transformation decisions for applications, data, infrastructure, and security layers. This approach encourages a business strategy that spans economic cycles, with investments likely to yield positive returns and long-term advantages during both prosperity and downturns.
‘Continually optimizing technology spending can serve businesses well during both crises and boom times, helping companies realize savings, reduce technical debt, and transform business models without sacrificing capabilities or risking quality.’
The cloud. According to the Deloitte Global Cost Survey, cloud is the most widely implemented digital technology for reducing costs and increasing productivity (63% of global organizations). The cloud can be architected with the flexibility to scale or reduce technology spending depending on business need and economic cycles while providing agility to try out new business models, continually improve, and roll out new products and features quickly. For example, by leveraging the cloud, one U.S. regional insurance company converted its IT function into a modern as-a-service model and shifted roughly 40% of expenses from capital expenses to operating expenses for an expected savings of 30% or so on total cost of ownership over five years.
AI and machine learning (ML). A broad and balanced portfolio of AI and ML applications can enhance crucial processes such as contact center operations and infrastructure management that can drive growth. It can also free up funding to streamline other core processes and fuel faster go-to-market strategies. Robotic process automation, especially combined with cognitive technologies, can improve service quality and consistency by reducing human error, automatically responding to user requests, and reducing downtime.
DevSecOps. To streamline new application development and aid in digital transformation, many companies are integrating security with traditional DevOps development. DevSecOps enables greater collaboration between security and release teams, which can shorten delivery cycles, increase agility, and accelerate time to market for production feature releases
IT sourcing. While many companies regularly reevaluate IT sourcing to optimize service providers and contracts, digital technologies have significantly transformed the outsourcing environment. Outsourcers are now leveraging technologies such as augmented and virtual reality to deliver services in a new way while optimizing spending.
Application portfolio rationalization. Identifying opportunities to reduce application spending and portfolio complexity can help align technology with current and future business needs while containing costs. Replacing on-premise approaches with software-as-a-service (SaaS) solutions and consolidating and re-platforming older applications can help streamline existing portfolios and free up technology budgets for new business transformation programs.
Software asset management (SAM). SaaS solutions and new software licensing models have added even more layers of complexity to software asset management. According to recent Deloitte research and client work, unrealized cost savings average 25% of annual maintenance spending, and companies are using SAM to save more than 20% on their software budgets.
Regardless of the sources of economic uncertainty, technology spending optimization is an ongoing journey that can provide dividends through ups and downs for the forward-thinking companies that embrace it. By establishing a continual optimization strategy that reimagines technology as a vehicle for transformation, companies have the opportunity to realize long-term, sustainable value, now and well into the future.