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Gartner: IT Services Investments Represent One of the Largest Opportunities for Cost Savings and Optimization

"During the last five years, spending on external services has accounted for more than hardware and software spending combined."

by / February 27, 2009

Organizations seeking to rationalize IT spending should look closely at IT services investments, because they can represent one the largest opportunities for cost savings and optimization, according to Gartner Inc.

"During the last five years, spending on external services has accounted for more than hardware and software spending combined," said Frances Karamouzis, research vice president at Gartner and author of IT Services: One of the Highest Opportunities for Savings Given It's One of the Largest Sources of IT Spending. "However, IT services continue to receive less mind share, management attention, discipline and focus than these lesser areas of spending. Going forward, the strategy, selection and ongoing management of IT services must become one of the top strategic imperatives for enterprises."

Gartner said that it is generally not appreciated how large the spending on external IT services is because it is often extremely fragmented. The reality is that, in aggregate, enterprises spend less on their own internal staff, equipment and facilities than they do on external IT service vendors.

"The inconvenient truth of this level of enormous IT spending being overlooked or relegated to lower levels in the organization results in the accumulation of complacency, inefficiency, ineffectiveness and lack of agility," said Karamouzis. "Organizations need to take steps now to manage IT services spending as part of wider cost-cutting measures."

Karamouzis urged enterprises to be realistic and take an honest look at their skill gaps, inefficiencies, ineffectiveness and communication issues, as these are often the areas that will yield the highest savings. She also recommended that enterprises conduct a market scan to understand market-based quality levels and cost structures, as well as comparing insourcing, outsourcing, and hybrid and alternative delivery models. These strategies will help organizations not just to cut costs in the short term, but to manage them in the longer term.

Gartner advised that it is time to critically examine alternative delivery models of all types, including business process utilities, software as a service (SaaS), infrastructure utilities and many more. A newer class of alternative delivery models is emerging, premised on predesigned, standardized solutions that are configurable (to an extent), with the goal of industrializing the market. The economic recession may well prove to be the tipping point that forces enterprises to finally decouple the business processes that must remain "custom" to the enterprise from those that can effectively use a configurable industrialized solution.

"Managing IT costs is not just about buying the hardware and software. The big spending is in the delivery of IT services to design, build, deploy and manage those assets. The art and science of execution are where the money is and key to the savings," said Karamouzis.

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