Part of KPMG's series COVID-19: Insights for CIOs and IT executives on considerations for building IT and business resilience in challenging times.

The longer the economic impacts of COVID-19 last, the more likely it will be that even the strongest organisations will consider their balance sheets and face difficult financial decisions. It is during tough economic times that CIOs get pressured to cut costs, often coming at a significant price to the business in the long-term.

Over the past few months, in the scramble to support remote working, scale cloud services and deploy productivity and collaboration tools, many IT departments have witnessed capex and opex expenditure in excess of the budget. Now, as we move towards resiliency and recovery, technology executives can expect to be asked to identify areas of savings.

However, there are levers to pull in order to optimise cost-cutting initiatives, while simultaneously developing a comprehensive plan to simplify, restructure and strengthen your IT operating model to better position your business for the long haul.

Core IT services is one area for organisations to actively examine. The effects of COVID-19 has made many organisations reconsider the design of their traditional core IT services. In this context two strategies are outlined below, both of which can have a significant impact on cost as well as positioning your organisation for future resilience.

Lever 1: Re-designing the core

With so many changes implemented quickly in this COVID-19 environment, what will remain permanently changed and what will return to normal? It is likely that with so many businesses now relying on remote working, and new ways of interacting with employees, suppliers, customers and communities, some of these changes will stick, especially those that have integrated cloud-native applications and modern infrastructure components into the IT operating model. This digital backbone is a must for future success. The real question is whether the cost constraints required by the current state and the needed technology investment can be balanced?

Many companies have already switched their IT infrastructures to a hybrid, multi-cloud environment to leverage the benefits of flexibility and scalability. Having worked closely with IT leaders to optimise cost, we know that most organisations are over-paying for their configuration of cloud infrastructure with an estimated 30 percent of cloud computing spend wasted because instances are over-provisioned and not optimised. Companies have difficulty tracking what software assets they own, how and when they are deployed, and also lack appropriate data and insights to effectively manage and monitor the usage lifecycle of cloud assets.

This presents a large opportunity to optimise the environment and reduce costs by rationalising the application and infrastructure environment to remove those technologies not delivering value, upgrading out-of-date virtual machines, shutting down and right-sizing unused or under-utilised compute instances, and switching to the optimal pricing model for your cloud workloads. Cloud optimisation tools can help you identify where best to realise the potential savings.

We consistently find double-digit percentage addressable savings. For example one client uncovered 26 percent of potential license savings alone; for a cloud-hosted service we avoided cost of approximately $1.8 million across reserved instance, utilisation/auto-scaling and technical configuration savings – cash which could be re-invested in cloud migration and/or business services improvement.

By understanding the total cost of both current and future objectives, it becomes much easier to determine what specific levers to pull across the value chain.

Lever 2: Re-defining the service delivery model

Utilising global delivery models, outsourcing and offshoring has become a part of most companies’ IT service delivery models. In the current pandemic environment it’s also meant reviewing contracts for a more resilient future. Within your service delivery model, there are many hypotheses to consider, below are just a few priority areas:

  • Location strategy: Have certain remote working locations been more effective than others? Were you operating out of secure or approved facilities that are no longer accessible? Model the implications of a distributed or regional model on general and administrative costs like real estate, your business continuity requirements across centres, security and contractual issues, and set a baseline of required modern infrastructure.
  • Outsourcing agreements: Are your contractual obligations with offshore or remote providers able to be met? Has there been a significant drop in productivity or signs of lost expertise from your providers? Perhaps there is an opportunity to re-negotiate or change service level agreements in exchange for price concessions or changes in payments terms.
  • Resource productivity: There may be work types and functions that can be immediately removed, augmented or automated in an effort to reduce costs and increase speed. Targets like customer contact centres, testing and QA, event management and monitoring, should all be reviewed. Consider AI-enabled bots and machine learning to help continuously improve data and deliver results at scale.

The goal is to help the organisation preserve cash and avoid new costs while taking steps to emerge with a more healthy and competitive position. Resist the urge to cut the more strategic technology enablers. Depending on your industry, those investments could be critical in helping you reset, rebuild or reinvent your company.


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COVID-19: Insights for CIOs and IT executives series