© 2014 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity."

George Ambler

Spend Less on IT, Drive More Value: How Best-in-Class Organisations Do It

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

How Do Your Clients Perceive IT?

ERP

Cloud

Digital

Our Perception of IT Their Perception of IT

Do We Run IT Like a Business?

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Key Issues

1. What is the best way to approach IT cost optimization?

2. How to manage IT cost optimization using Gartner’s four phase process

3. How can a broader approach to IT optimization deliver breakthroughs that increase IT's contribution to business success?

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Leading Practice: Treat IT Cost Optimization As An On-going IT Discipline

Successful IT cost optimization programs have common characteristics that deliver sustained results as compared to typical cost cutting programs

Characteristics of IT Cost Optimization Programs

1. Have a clear definition of short- and long-term success

2. Operate from a basis of fact rather than speculation

3. Look at the Demand side of IT as well as Supply side

4. Prioritize cost savings opportunities taking into account risk to implement in addition to financial payback

5. Align IT Cost Optimization management disciplines with business alignment objectives

6. Focus on successful execution, including a program in place for benefits realization to hold people accountable through measured performance

7. Use working capital from IT savings to self-fund improvements towards business

Our services constantly evolve

with clients' changing needs, but our focus on results never changes

Evaluate

Strategize

Execute

Optimize

ManageStrategize

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Gartner Framework for IT Cost Reduction

IT ProcurementGet the best pricing and terms for your IT purchases

Cost Savings Within ITIdentify opportunities to reduce IT costs

Joint Business and IT Cost SavingsImplement cost-saving technologies with the business

Business Restructuring and InnovationProcess improvement, reorganization, new methods

Different types of cost optimization involve different parts of the organization and varying IT department decision rights

Difficulty Value

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Key Issues

1. What is the best way to approach IT cost optimization?

2. How to manage IT cost optimization using Gartner’s four phase process

3. How can a broader approach to IT optimization deliver breakthroughs that increase IT's contribution to business success?

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Manage IT Cost Optimization Effectively Using Gartner's Four Phase Process

Create Detailed Road Map

Phase 1: EstablishBaseline

Phase 3: Develop Capture Strategy

Phase 2: Identify Opportunities

Create Benefits Dashboards to Measure and Monitor

Set Measurable Targets

Phase 4: Realize Benefits

Evaluate Risk vs. RewardPrepare Org. Change Program

0

100

200

300

400

500

600

700

800

900

Productivity trend & Defect rate influence

productivity trend

defect rate trend

Linear (productivity trend)

Poly. (defect rate trend)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Requ Design CUT SYS Test UAT

Barclays

Gartner Peer

0%5%

10%15%20%25%30%35%40%

Development Activity Distribution

UKL

Avg

0%

5%

10%

15%

20%

25%

30%

35%

40%

PM Req & Des CUT Tes & DR Imp QM Oth

Barclays

Gartner Peer

xyz trend

Stand Up ITCO Program Office

For internal use of BPL only. © 2003 Gartner, Inc. All Rights Reserved.

Page 30

Engagement: 220447480—July 2003

consulting

July DATE DATE DATE

Business Benefit Risk

1. Benefit Specification

2. Benefit Measurement

3. Value Management

4. Ongoing Cost Planning

5. Ongoing Cost Management

6. Gap Management

7. Project Prioritization

8. Complexity Control

Budget & Schedule Risk

9. Estimation Quality

10. Contractual

11. Project Management

12. Project Resources

13. Budget Management

14. Scope Management

Initial Project Risk Observations

High Risk Medium Risk Low Risk

Business Case needs to be reviewed and updated so that measurable progress can be quantified and reported.

Comments

Project Scorecard

It is unclear how the resources from all parties are going to be utilized/coordinated, and when the project mgmt. controls are going to be implemented. For internal use of BPL only.

© 2003 Gartner, Inc. All Rights Reserved.

Page 30

Engagement: 220447480—July 2003

consulting

July DATE DATE DATE

Business Benefit Risk

1. Benefit Specification

2. Benefit Measurement

3. Value Management

4. Ongoing Cost Planning

5. Ongoing Cost Management

6. Gap Management

7. Project Prioritization

8. Complexity Control

Budget & Schedule Risk

9. Estimation Quality

10. Contractual

11. Project Management

12. Project Resources

13. Budget Management

14. Scope Management

Initial Project Risk Observations

High Risk Medium Risk Low Risk

Business Case needs to be reviewed and updated so that measurable progress can be quantified and reported.

Comments

Project Scorecard

It is unclear how the resources from all parties are going to be utilized/coordinated, and when the project mgmt. controls are going to be implemented.

Create the IT Base Case

Capture Total IT Cost

Establish Cost and Performance Baseline Relative

to Peers

Analyze Improvement Options

Identify Viable Alternatives Feasibility Planning

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

1. Establish a Baseline

IT Spending % of Operational Expenses 4.4% 4.3%IT Spending % of Revenue 3.5% 3.3%IT Spending per Employee $12,696 $13,100IT Employees % of Total Employees 5.3%* 5.0%*

20142013Cross Industry Averages

Run 67%

Grow 20%

Transform13%

Contractors20%

In-house80%

IT Capex 29%IT Opex 71%

Hardware 16%Software 20%Personnel 41%Outsourcing 23%

Apps Dev. 18%Apps Support 16%Data Center 23%End User 11%Data Network 9%Service Desk 7%Voice Network 6%IT Mgmt. 6%Fin. and Admin. 4%

Gartner IT Key Metrics Database, 2014 *2012/2013 Figures for IT Employees

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Start With a Follow-the-money Approach to IT Cost Optimization

23%

18%

16%

11%

9%

6%

7%

6%4%

Data Center

App Development

App Support

End-user Computing

Data Networking

Voice Networking

Service Desk

IT Management

Finance and Administration

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Cost Optimization Opportunities Remain in Every Area of IT

Differences Between Average and Best Performers

Overall IT Spend 38% difference in cost

Application Development 53% difference in cost per function point

Application Support 55% difference in cost per function point

Mainframe 35% difference in cost per installed MIPS

Unix Server 62% difference in cost per server

Wintel Server 32% difference in cost per server

Storage 44% difference in cost per TB

Desktop 22% difference in cost per device

Help Desk 33% difference in cost per handled contact

Wide-area Data Network 43% difference in cost per device

Local-area Network 51% difference in cost per active port

Wide-area Voice Network 27% difference in cost per minute

Voice Premise Technologies 34% difference in cost per active extension

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

2. Identify Opportunities and Assess Viability

For each opportunity generated: • What's the upside?

• Is it worth the effort?

Small Medium Large

>18 months 6 to 18 months <6 months

High; impacts OS, DB, middleware, and applications

Moderate; impacts few components

of the architecture

Low; little more than "moving

boxes"

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 Moderate Low/None

Negative None Positive

Potential Benefit:• How big is the saving if the action is implemented and

how does it affect cash flow?

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

Degree of IT Technical Risk:• Is there a risk that the change will undermine the ability

of your systems to deliver?

Degree of Organizational Risk:• Will your leaders ensure the changes are made?

Is your organization capable of adapting to the changes?

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?

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

Benefits

Costs, Time, and

Risks

?

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

3. Develop Strategy and Ready Change Program

Imp

lem

enta

tio

n R

isk/

Tim

e

Benefits/Cost Savings

Reform IT Governance and Demand Management

$5.7M

Outsource Application Development and Support

$8.0MOptimize

Infrastructure Service Delivery

$2.0M Recompete Data and Voice Networks

$1.5M Improve ILM and Data

$8.0M

Application Portfolio

Optimization

$10.5M

Improve Application Delivery

Is the risk worth the reward?

Opportunities likely taken as natural part

of business

$1.5M

Optimize End-User Support

$6.0M

ILM = Information life cycle management

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

4. Track Benefits

UnanticipatedBusiness Changes

Complex Technical Solution

Lack of Org. Change Mgmt.

Poor Estimation(Benefit Size, Investment)

Increase Virtual-ization

Mature S/W Asset

Mgmt. Practices

Large Program Benefits Predicted

Mature Key ITIL

Processes

Re-negotiate

S/W

RationalizeApplications

Deploy Info. Life

Cycle Mgmt.

Often Smaller-Than-Predicted Program Benefits Realized

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Key Issues

1. Which IT cost optimization techniques will be most effective going forward?

2. How can IT executives break throughcost-cutting barriers and optimize business performance?

3. How can a broader approach to IT optimization deliver breakthroughs that increase IT's contribution to business success?

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Traditional IT Cost Cutting Provides Limited Value in an Increasingly Digital World

Source of IT Budget Data: "IT Key Metrics Data 2014: Executive Summary" (G00258818)

IT Cost4.3% of

Enterprise Costs (Opex*)All Other

Business Costs

*Industry Average 4.3%

Government 9.1%

Banking 8.0%

Healthcare 4.3%

Utilities 3.6%

Transportation 3.1%

Manufacturing 1.8%

Retail 1.8%

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Change the Approach to Deliver ITO360

Traditional View• Cost cutting• Looking at constrained

opportunities within IT• IT supports the

enterprise• Cost accountability

stays in IT• Single view of the

IT budget(General leader view)

• "Good enough" cost transparency

ITO360 View• Value adding• Looking at multiple

opportunities outside IT• IT is a key partner• Cost accountability

passes to the business• Multiple views of the

IT budget• World-class cost and

value transparency

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Work Smarter: Change IT's Role Through ITO360 Approach

OptimizeIT

Optimize Business

Processes

Optimize Information

Delivery

Optimize Business

ModelIncreasing IT Engagement and Skills

Technology Innovator

Information Architect

Process Designer

IT Technician

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Recognize and Overcome the Barriers That Keep IT in Cost-cutting Mode

• Incomplete business strategy

• Business silos

• Lack of integrated KPIs

• Insufficient business-IT skills

• Low enterprise risk tolerance

• Low IT credibility

• Cultural issues

• Poor innovation processes

• Lack of leadership

• Inadequate governance

Typical Barriers:Rank Top 3

____

____

____

____

____

____

____

____

____

____

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Recommendations Be proactive when managing IT cost optimization. Create a cost optimization team. Get the team to leverage the four steps to build a solid IT

cost optimization program Break out of cost-cutting mode by taking transformation

actions to position IT and the enterprise IT for success. Build a skilled business and IT workforce focused on

enterprise optimization. Forge partnerships with business stakeholders and

develop the vision for what ITO360 looks like in your enterprise.

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved.

Recommended Gartner Research

Predicts 2014: Taking a 360-Degree View of IT Optimization Will Deliver Increased Value

John Roberts and Barbara Gomolski (G00258191)

ITO360: Break Through IT Cost-Cutting Barriers to Optimize Business Performance

John Roberts and others (G00262676)

How to Manage the IT Budget Wisely Through Cost and Value Optimization

Barbara Gomolski and John Roberts (G00263355)For more information, stop by Gartner Research Zone.

© 2014 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity."

George Ambler

Spend Less on IT, Drive More Value: How Best-in-Class Organisations Do It