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Five areas of focus for IT cost optimization

With digital technology as a top priority amid today’s rapid change, CIOs must address various organizational issues to optimize costs.

In brief
  • CIOs face ongoing pressure to cut costs while positioning their organizations for growth.
  • Optimizing IT spend requires leaders to address a broad spectrum of issues, including workforce management and vendor relationships.

As we continue to adapt during uncertain times, organizations need to be significantly disciplined in terms of spending. However, they must also prepare for their next wave of growth as they strive to operate from a position of strength. To stay ahead of the curve, organizations have to rethink how they manage technology spend and truly reshape their IT cost structure and future operating model.

According to a recent forecast, worldwide IT spending is projected to total $4.5 trillion in 2023, an increase of 2.4% from 2022.1 Accounting for anticipated inflation in 2023, this isn’t necessarily an overall increase in spending. Digital technology initiatives remain a top strategic business priority for corporations and their chief information officers (CIOs) as they continue to reinvent the future of work. They are now focusing their spending on fortifying their infrastructure and accommodating for increasingly complex employee hybrid work arrangements. To accommodate this, other technology areas will need to free up capital and resources.

Key CIO challenges

To successfully optimize their technology footprint, CIOs should ensure that IT leaders understand the following key challenges and considerations.

  • Organizational buy-in: IT leaders must gain buy-in from business units within the organization so that they can help identify cost opportunities while also understanding the value that IT cost optimization can provide. Financial transparency, for example, can help with this by enabling a baseline understanding of key cost drivers, which includes shadow IT drivers.
  • Keeping up with the rate of change: Organizations are always facing change, whether it is new tools, technologies, market constraints or major events such as mergers or acquisitions. Therefore, they have to a) invest and remain bold in defined areas and b) retain their ability to pivot and redirect investments and resources at any time.
  • IT financial management leading practices: Time and/or effort is needed to develop sound IT financial management practices that protect the organization against bad decisions or tight situations. These practices can include baselining costs, developing end-to-end business cases, harvesting benefits and continuously looking for ways to optimize returns.
  • Cost optimization as a mindset, not just another activity: Successful cost optimization requires a shift in mindset. Organizations should shift their focus to thinking of cost optimization as an ongoing activity rather than a onetime practice.

Decisions around cost optimization aren’t always about cost reduction. The key challenge is to maximize business outcomes delivered from IT spend.

Drawing on the latest EY industry experience and a series of interviews with subject-matter professionals and industry leaders, below are the five key areas CIOs need to address to optimize IT costs and maximize returns.

ey financial services diagram

1. Project and Investments

As organizations look to reduce their IT spend, business units must justify the need for certain expenditures. The Project and Investments area is necessary but requires a dynamic planning and funding model, full transparency and accelerated delivery.

For years, IT leaders have implemented systems to track projects and portfolio throughout their organizations. However, they still struggle with capturing business value and making accelerated decisions; keeping project data accurately updated; getting visibility on resource and contractual commitments, dependencies and progress; and continuously reviewing and stopping projects that are not delivering value.

Maximizing returns and optimizing costs in the Project and Investments area can be improved significantly with the following:

Financial transparency

Provides a better understanding of the cost base and cost drivers; visibility into how costs flow through the service delivery value chain and how costs can be optimized through the implementation of changes; and a deeper analysis of demand and consumption.

Project and portfolio rationalization

Portfolio-based approach to the governance or management of an organization’s projects; the objective is to maximize returns optimizing the project portfolio — keeping only those projects that are delivering superior value but also continuously monitoring progress and making timely decisions accordingly.

Zero-based budgeting

A strong step for establishing a “minimum viable” spend and redirecting the savings to invest in structural changes for a “strategic optimum” spend baseline.

Investment planning and governance

The process of aligning strategic goals with investments; this includes making tough prioritization decisions across the business and continuous oversight to help organizations confirm that they are extracting the most optimized ROI in quasi-real time. Annual governance and budgeting are no longer sufficient — quarterly and monthly monitoring and decision-making are the new norm.

2. Partner Ecosystem

Another key area of focus for organizations looking to reduce or get more out of their IT spend is the optimization of the supply of equipment, resources and services through IT vendor management and contract renegotiations. In an economy where supply chains are more and more dependent on third parties, organizations are challenged by a reliance on vendor resources for support and technical expertise in key areas, resulting in a limited ability to effectively manage technology spend.

IT procurement and vendor management
of enterprises are managing more than 10 vendor relationships for a single IT initiative.²

Optimizing vendor relationships is a key step in reducing IT spend and execution risk across the organization. Focusing on vendor selection helps organizations find the vendor that will yield the highest value while also ensuring that all key requirements are met for a given initiative. Additionally, revisiting existing vendor relationships to renegotiate contracts can lead to the best value.

However, organizations need to go beyond the transactional aspects often associated with the vendor management function. They need to evolve from just managing and procuring vendors to developing a strong relationship with fewer partners for long-term value creation. A well-balanced partnering strategy can not only maximize outcome, but it can also reduce execution risks. The keys for success, however, are to select the right partners, communicate demand promptly and implement the proper operating model with joint incentives and rewards mechanisms.

Getting the most out of the partner ecosystem requires the following:

Procurement fundamentals

End-to-end processes of selecting and aligning vendor solutions to organizational requirements and initiatives and going beyond transactions with vendors to long-term partnerships.

Vendor rationalization

Analytical tools and AI-based technologies implemented to run in-depth analysis of spend across all suppliers, providing opportunities for significant vendor rationalization.

Contract renegotiation

Revisiting existing vendor relationships to re-evaluate whether organizational needs are being met; reassessing service costs and delivery terms and conditions to leverage the latest efficiencies and access to new market entrants or services.

3. IT Processes and Ways of Working

To reduce costs and work more efficiently, organizations are transforming their IT processes to improve alignment between IT teams and business units. Poor collaboration between these two groups can hamper an organization’s ability to achieve its digital goals. To combat this, organizations are increasingly leveraging Agile and DevOps approaches to accomplish their objectives in a timely manner.

Process automation growth
of IT decision-makers plan to increase investment in process automation.³

A strategic way CIOs can improve the IT Processes and Ways of Working area is to further automate delivery opportunities in their organization. CIOs are turning to automation to address their project backlog and increase the speed of IT delivery to production through implementation of a clear path to production, rollbacks, code scanning and other actions.

IT executives can significantly improve the efficiency of the IT processes and transform their ways of working for increased output by leveraging the following:

Process automation

In addition to automating business processes, IT organizations need to automate their own activities as much and as fast as possible. Every project or release should be an opportunity to automate further (e.g., QA automation).

Agile and/or DevOps

Continuous delivery of IT projects through iterative development and testing. Shorter delivery cycles allowing better management of the value delivered and potentially redirecting investments to higher-value outcome in a timely manner.

Machine learning and/or AI automation

Human-based skills augmented by AI can improve support and delivery from AI ops, analytics, aided solution design and code generation, and other activities.

Demand management

Rationalizing IT requests, prioritizing projects and assessing capacity based on current demand and pattern analysis.

Knowledge management

A collection of methods relating to creating, sharing, using and managing an organization’s knowledge and information, with new technologies exposing this knowledge and content to IT resources or others in a more effective and timely manner.

4. Technology Ecosystem

As an organization’s technology ecosystem continues to grow, legacy technology is not properly retired, which increases the complexity and maintenance overhead, thus hindering security and scalability. IT leaders should look to be more effective and efficient with costs while dealing with an ever-expanding technology ecosystem. Ideally, there should be a balance between optimizing and adding to existing functionality instead of continuously augmenting it.

Potential cost-cutting opportunities
of the total IT spend is dedicated to investment in new development.⁴

With 83% of IT resources and investments focused on operating and maintaining older systems, rationalizing the existing technical stack to reduce spend should be part of the CIO’s playbook.

Over the years, environments have become more and more complex. Rationalization will require a systematic approach and some investment too. But it starts with the systematic management of technical debt and a solid, detailed inventory across the IT footprint to assess business value, risk and total cost of ownership. This enables leaders to identify opportunities and reprioritize resources.

CIOs can optimize the costs of their technology ecosystem through the following:

Application and/or infrastructure rationalization

Reshuffling an application portfolio as part of an application strategy or infrastructure strategy, a plan to implement changes to applications to achieve a business outcome.

Site reliability engineering (SRE)

Leveraging SRE to better understand the behavior of the systems and impact on business services and customer experience to prioritize maintenance and accelerate remediation or system retirement to reduce costs in the long term.

Modernization and cloud migration

Migrating to the cloud, which can improve performance and end-user experience and reduce IT costs significantly, can also increase costs if FinOps or adequate financial processes are not in place.

5. Workforce

An engaged and dynamic workforce is a key aspect that is critical to any IT organization’s success. Many organizations struggle to execute on their strategy because they fail to align their workforce with their key objectives. Their greatest challenge is that they lack the ability to put the right person in the right place at the right time and for the right cost.


Optimizing the workforce is also perceived as a lever that can be used to reduce costs significantly and rapidly. Workforce-related cost reduction has solely been condensed to headcount reduction too many times. Today, this should no longer be the case, as there are new ways to achieve greater output and improved efficiency within a given workforce. The key to success is for an organization to match the right skill sets with the greatest needs or highest priorities — and not just today’s but tomorrow’s too.


Organizations should seek less generic and more specified skill sets for their future hires. It is crucial for leaders to define the core skill sets they require for each role within their organization. Core skill sets should be found in full-time employees, while non-core skill sets can be supplied through outsourcing and strategic partners.


Today's workforce has greater location flexibility than ever before thanks to the growing adoption of remote work and hybrid working models. These factors should help organizations find prospective employees that have the right skill sets more easily. However, employers are facing new challenges every day in the race for talent. First, organizations everywhere are facing a talent shortage of highly skilled workers. To combat this, employers must be prepared to not only hire workers with the right skills, but also to train and develop their team members once they are onboarded. The second major challenge is that today’s workforce is asking for more meaning from their employer. Members of the workforce are seeking a deeper meaning of their contributions to the organization. As such, it is vital to create an experience where individual employees are actively engaged in the greater role of their job duties. Truly investing in the workforce’s career journey can show a significant, positive return in output and employee retention.


The final stage of optimizing the workforce is to ensure these in-demand skill sets are available at the right time for the organization. Capacity planning is key to solving this challenge. Organizations must plan their projects and timelines to allow for the right people to be available as soon as their skills are needed. Maximizing production and reducing resource-related delays are excellent workforce cost-saving measures.


Workforce cost optimization is not, and should not be, headcount reduction; rather, it should leverage the following methods to improve overall profitability and efficiency:

Shared services

A dedicated unit (including people, processes and technologies) that helps organizations realize economies of scale across the enterprise. The level of integration or centralization can vary from a center of excellence all the way to a set of shared services located in capability delivery centers depending on the needs.

Capacity management

A critical capability for an organization to understand, analyze and plan its capacity to optimize delivery based on priorities and resource availability across projects, products and skill sets.

Resource and location strategy

Analysis for productivity measurement of the resources and assessment of suitability from an on-site and/or off-site model standpoint, site location (cost of living and/or resources), onshore or offshore model and everything in between.

Strategic outsourcing and insourcing

Historically, IT organizations have outsourced significantly. Recently, many organizations have re-insourced several functions to implement new ways of working and retain specific skill sets.  Core skill sets should be identified and prioritized. Non-core and/or commoditized skill sets are best supplied via outsourcing.


The CIO must work with their business stakeholders to reduce costs swiftly and thoughtfully as they analyze each focus area while positioning the organization to drive new growth and innovation. The CIO along with enterprise leadership will have to balance the challenge of cost-reduction measures with the potential value to the business of reinvested savings. The right balance is key to positioning the business to succeed in the changing technology landscape. It cannot be achieved by the CIO alone but in partnership with the business. And it is not a one-and-done affair but requires continuous focus. Even if the practice was done a few years back, it deserves a new level of attention or scrutiny given the change of circumstances, needs and capabilities. It may seem repetitive, but it’s a very healthy discipline.


As the future of work evolves and digital technology remains a strategic business priority, organizations must strike a balance between the pressure to cut costs and the imperative to drive innovation. CIOs need to consider a broad range of issues to do this. Otherwise, they run the risk of starting cost optimization initiatives that could become problematic.

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