Strategic

Cost
Reduction
Delivering high
performance IT in an
economic downturn

The need for action

is right now.
How soon can you
meet with your CEO
to discuss?
The current economic High performance businesses
successfully reduce overall costs
downturn requires a sharply and for the long term,
shifting spending towards IT
strategic approach capability and business growth
to cutting IT costs. to ensure that they step up IT
performance at the same time.
Here are three With a sustained economic
downturn well underway, top
practical steps that managers of large private sector
enterprises and government
you can follow. organisations are prioritising cost
reduction as never before—and they
are looking for new solutions.
Many IT executives will be tempted
to concentrate their cost-cutting
efforts on IT’s discretionary
spending budgets as they view
non-discretionary operational
costs as the result of decisions
long past and irreducible.
However, discretionary spending
accounts for only one fifth of
an average IT budget today.
Furthermore, cuts made to only
discretionary IT spending can
have unintended consequences:
IT service quality can drop, and
the delivery of critical business
projects can stall or slow.
Figure 1—Strategic IT cost reduction programs must address non-discretionary IT spend
Capex—Discretionary
• IT Innovation
• Business Growth
• Technology Refresh
Opex—Non-Discretionary
Direct DC Cost Reductions
• Facilities-Location Consolidation &
Environmental-Efficiency Initiatives
• Technology-Virtualisation, Standardisation
& Intelligent Provisioning
• Organisation, Offshore, Process, Tools & Sourcing,
Indirect Cost Reductions
• Virtualised Desktop
• Cloud Computing & SaaS Capabilities
The way forward: a sustainable approach to cost-cutting
When an organisation wants to cut
IT costs strategically, the first step
is to agree a “to be” version of the
IT budget that envisions a substantial
compression of the non-discretionary
component paired with a dramatic
increase in the portion that goes to
discretionary projects. The key objective
must be that future discretionary
funding is not only protected but
enhanced (see Figure 1).
To make this happen, Accenture
recommends IT organisations follow
a three-phase journey (see Figure 2)
that delivers short-term and long-
term cost savings. This approach
not only funds the changes that
will produce greater savings but
lays the foundations for growth
and innovation. The key steps are
as follows:
Average Budget Transformation
As-Is To-Be
20% 40%
Discretionary Discretionary
80%
Non-
60%
discretionary
Non-
discretionary
IT Budget Cost Reduction
1 Minimise. Identify areas of clear This layered approach is a practical
and immediate cost reduction route to ensuring that cost-cutting
opportunities. This provides increased and high performance become
room for manoeuvre while boosting attainable together—not at the
the confidence of stakeholders with expense of each other.
the prospect of near-term cost relief.
There are substantial benefits
2 Optimise. Run current operations to this approach: in our
more efficiently by improving the
use of software and hardware assets, experience, it allows CIOs to
thereby divesting non-essential achieve durable cost reduction
assets and decreasing average IT that is up to four times greater
unit costs. than with traditional cost-
cutting efforts.
3 Redesign. Embed structural changes
by shifting the focus to lower cost
delivery models. This drives significant
improvements in labour costs,
extracting savings through better
operating models, leaner processes,
transformational technologies and
sourcing strategies.
Figure 2—High performance organisations follow a strategic approach to IT cost reduction

Focus on 1 Minimise
immediate cost
reduction opportunities

Focus on improving the

use of hard assets and 2 Optimise
decreasing their average
transaction costs

Focus on efficient and effective IT operating model 3 Redesign

Scale of cost savings

Minimise: stabilising IT spending patterns

One way in which the CIO may be
able to tap into relatively rapid
savings opportunities is by seeking
out and tackling “hidden” IT costs
that have seeped into the business
over the years. Accenture went
through this stabilisation exercise
for its own IT organisation when,
in the course of a company-wide IT
overhaul, our CIO decommissioned
more than 200 applications around
the world, saving Accenture more
than US$12 million as a result.
Another example involved a major
retailer that discovered startling
amounts of IT costs hidden in its
business operations. The company
had already successfully taken steps
to minimise internal IT spending, but
with help from an Accenture team,
the retailer found that the business
units had developed IT budgets,
with the result that some $60
million a year was being spent on IT
initiatives of which the CIO was not
aware—including salaries for 89 IT
professionals on the business units’
payroll. The CIO reclaimed the $60
million, rationalised the services that
were represented by that sum across
the business units and then provided
the same services to the business
for half the cost. The company’s CIO
validated $30 million in savings.
Minimise checklist
• Make sure you know what you
are spending on: put processes
in place that accurately measure
and manage both internal efforts
and third-party costs as a basis
for identifying the potential areas
for saving.
• Only fix high-impact defects:
the remaining budget should have
a strategic focus.
• Defer upgrades: sweat assets.
• Flatten organisational structure:
freeze hiring and reduce travel.
• Measure and cut power
consumption and printing.
• Renegotiate service level
agreements (SLAs) by five to
ten percent.
Optimise: running current operations more efficiently
The next phase begins the work of
making permanent changes in IT
spending—and IT capabilities—both
within IT and in the business to
increase asset utilisation and
decrease transaction costs.
Optimising will result in redirecting
some of the ongoing operational
non-discretionary spending to deliver
greater business value. Savings from
a server virtualisation initiative, for
example, can be directed towards a
process redesign of how the servers
are managed, yielding durable
savings in labour costs. Without
such an investment, savings from
virtualisation tend to be short-lived.
Redesign: embed sustainable changes
During this phase, forward-thinking
IT organisations evolve the cost focus
from task optimisation to a focus
on facilitating business outcomes.
They push toward lower-cost delivery
models. The key is the ability to make
structural changes which affect
dramatic improvements in working
capital and labour costs.
When a global banking and
investment institution undertook a
recent IT transformation, significant
cost reduction was an imperative. Its
heritage of global expansion and strong
client focus had left it with an IT
environment that was highly
localised. So, for example, clients in
Singapore were handled exclusively
by the Singapore hub. This approach
had worked well over the years, but
the company now had to gain greater
global control of its standard processes
and tools, enabling it to find significant
cost savings while maintaining
organisational performance.
Accenture’s recent moves show the
benefits of careful reallocation of IT
spending. Leveraging the Internet’s
scale and cost efficiencies, Accenture
was able to move to a single
technology platform that involved
migrating company-wide messaging
and collaboration solutions to a
Microsoft solution. Accenture rolled
out a staged migration of nearly
80,000 e-mail users in 48 countries.
At the height of the nine-month
rollout, up to 1,000 e-mail users
were transferred per day.
Accenture helped the company
launch its IT transformation by
applying ITILv3 in order to create a
new infrastructure operating strategy.
This effort drove the redesign of
the operating model, which in
turn drove new organisational
design, operating processes, and
roles and responsibilities across
the organisation. Under the
new operating model, certain
components of the company’s service
management were centralised, while
others were decentralised to local
hubs (including global responsibility
for some domains).
The overall approach enabled the
company to retain its responsive
customer capabilities at a local level
while realising global economies of
scale, standardised working methods,
integrated tools and governance.
Optimise checklist
• Rationalise your servers, data
centres, networks, desktops, storage
and applications.
• Implement demand management,
cost transparency and chargeback.
• Review vendor management and
procurement.
• Develop organisational capabilities
and reduce reliance on contractors—
either build internal skills or
strategically source services
from a third party.
Redesign checklist
• Reset business expectations.
• Rationalise business processes
and application portfolios.
• Reframe the IT operating model
and standardise core services.
• Exploit scale through external
suppliers.
• Optimise your offshore-onshore mix.
• Reshape the retained organisation.
The idea that cost cutting and
performance improvements are
not mutually exclusive is gaining
acceptance among CIOs and their
business colleagues. And now the
frameworks are there for CIOs to secure
support for pushback against business-
focused IT spending. The CIOs who
see the big picture will be those who
can demonstrate steep IT cost cuts
that can be sustained while improving
business performance over time.
For more information about
delivering high performance IT in an
economic downturn, please contact
it.costreduction@accenture.com, or a
subject-matter expert in your region:
Grant Barker
IT Strategy and Transformation,
South East Asia, Australia and Korea
grant.barker@accenture.com
Whee Teck Ong
Technology Consulting, ASEAN
whee.teck.ong@accenture.com
Scott Halstead
IT Strategy and Transformation, ASEAN
scott.halstead@accenture.com
Copyright © 2008 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.
Amran Hassan
Technology Consulting, Malaysia
a.hassan@accenture.com
Raimond Pullinen
IT Application Outsourcing,
South East Asia, Australia and Korea
raimond.pullinen@accenture.com
Geoffrey Hunter
IT Infrastructure Outsourcing,
Asia Pacific
geoff.a.hunter@accenture.com
About Accenture
Accenture is a global management
consulting, technology services
and outsourcing company.
Combining unparalleled experience,
comprehensive capabilities across
all industries and business functions,
and extensive research on the world’s
most successful companies, Accenture
collaborates with clients to help them
become high performance businesses
and governments. With more than
186,000 people serving clients in over
52 countries, the company generated
net revenues of US$23.39 billion for
the fiscal year ended Aug. 31, 2008.
Its home page is www.accenture.com.
ACC08-1018