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Anja Allen, Principal, Technology Consulting, Ernst & Young LLP, says that IT cost optimization has historically been prompted by market events — and we’ve seen no shortage of those recently, with an added layer of uncertainty impacting technology decision-making. Coming off a quarter of volatility, CIO participants in the roundtable spoke openly about their uncertainty, with most saying that they face shrinking or static budgets even as the need for technology grows.
For those in consumer products and retail, the hit to consumer spending was immediately noticeable. One CIO with a significant manufacturing footprint in the US was cautiously optimistic, while another whose products are made overseas, often for use in warehouses and distribution centers, was facing “a whole lot more headwinds than tailwinds.”
Allen said the dynamic in IT cost optimization has evolved today because of three trends:
- Focusing not just on the supply side of IT but also the demand side, so that investments are tied to business priorities and provide maximum value to the business
- Creating IT cost optimization as a sustainable focus rather than a one-off event, so that more dollars can be allocated to growth and transformation (at least 30% of the IT budget) rather than on maintaining operations (70% or less, ideally)
- Leveraging agentic AI to bring outsourced capabilities back in-house while still reducing the cost of operations
CIOs discussed how challenging it can be to neatly divide investments between the “run side” of daily operations and the “grow-and-transform” activities for the future, a debate that manifests in the metrics they’re measured against.
“It’s like the saying that ‘a data lake is just plumbing,’ but there’s a lot of value to unlock there,” one noted.
Benchmarking is vital in these conversations. “I get asked: ‘How do we know we’re spending wisely?’” one CIO said. “Forget about the capex side — that has a clear business case. How do we know we’re spending our opex wisely?”
One executive who just stepped into a new role added: “There’s a lot of good people doing good work, but I don’t know if it’s the right work.”
Participants stressed the importance of orienting budget conversations around value, a sentiment aligned with viewpoints that Juan Uro, Americas Leader for the Strategic Relationship Office, has been hearing. “Chief financial officers understand that we cannot cut short the investments that move us in the right direction over the long term,” Uro said. “They describe the importance of a comprehensive assessment to ring-fence long-term investments. But they are seeking flexibility in the budget for the second half of the year through greater efficiencies.”
Other tactics include:
- Application rationalization to rein in the sprawl that can be difficult or even unnecessary to maintain
- Price protections, especially from vendors that frequently change their pricing models, through more stringent contracts
- Greater standardization and efficiencies through the use of AI capabilities (for instance, surfacing unneeded user access to an application), which has been largely overlooked