Tech businesses across the world have got blindsided by the turmoil of the global COVID-19 pandemic. Public social distancing obligations and subsequent government measures have immediate impacts on companies: disrupted supply chains, massive workforce lay-offs, remote work - which have all resulted in revenue losses.
Today, as COVID-19 rages on, business owners, CIOs, and CFOs need to have effective IT cost-saving strategies in place to ensure business continuity. It includes both short-term and long-term measures tailored to a different business scenario. Here at N-iX, we have been helping companies across the globe optimize and reduce their IT and operational costs since 2002. We have accumulated a number of best practices for managing IT costs. In this article, we will outline the top 6 IT cost reduction ideas that can help you minimize the impact of the COVID-19 crisis.
Experts from McKinsey suggest CIOs setting up a cross-functional team that will work closely with business units to coordinate IT cost-saving strategies based on performance measures. Depending on how the business situation unfolds, there are IT cost reductions ideas that need to be implemented immediately and actions that require thorough planning and investment. One should differentiate between cost-cutting and cost optimization. While the former refers to short-term immediate reductions related to cost elimination/rationalization/renegotiation, the latter is about improving performance in the long term. Value optimization has also its place among cost management approaches. It is associated with generating business value through ongoing innovation, thorough analysis, and prioritization.
In general, global IT spending is projected to total $3.4 trillion in 2020, a decline of 8% from 2019, according to the latest forecast by Gartner. To avoid common mistakes in IT cost reduction: increased shadow IT, loss of valuable knowledge, inability to reintroduce costs, etc., it is important not to lose sight of a big picture. So you can analyze your overall IT spend across several key categories: personnel, hardware, software, external contractors, facilities, and supplies. Each of these categories offer a certain degree of flexibility. McKinsey states that 30% of IT spend can be saved by taking measures that leverage the flexibility built into the cost base.
With this in mind, you can develop a clear view of which levers you can pull immediately and which will require more time. There are several tips for effective IT cost reduction for each of the categories.
7 effective IT cost reduction ideas that work
Make use of essential DevOps practices
Setting up and managing the IT infrastructure manually is becoming obsolete. With the rise of DevOps, this all can be automated which significantly reduces development times and saves money.
Infrastructure as a Code is an essential DevOps practice. It automates provisioning of IT infrastructure using configuration files. So developers don’t need to manually manage servers, operating systems, database connections, storage, and other infrastructure elements every time they want to develop, test, or deploy a software application.
Also, DevOps has brought the methods of Continuous Integration, Delivery, and Deployment. Now, with fully automated CI/CD, the need for manual intervention in the release process is minimum. This allows developers to focus more on features than the way they are integrated and deployed. They don’t need to spend time on preparing pipeline configuration and can perform instead more higher-value tasks. As a result, your software development team becomes more efficient, and the cost of your software projects is minimized.
Improve your IT infrastructure with an emphasis on security
Today, many companies are revising their IT and architectural capabilities to avoid challenges related to scalability, security, flexibility, availability that can cause unexpected expenses. It is difficult to continue with business as usual if your tech infrastructure is not adjusted to alternative types of work. To ensure effective remote working, businesses invest in improving their IT infrastructures. Companies that rely on private data centres run VPN load tests and check whether their existing infrastructure can support a sudden surge in people accessing on-premise services from various remote locations. Companies that use cloud are looking for ways to cut cloud computing costs amid the new reality.
Without proper tech infrastructure, you risk experiencing a number of security risks: compliance violations, contractual breaches, insecure APIs, misconfigured servers, malware, external attacks, accidental errors, etc. Thus, companies should never go cheap on security. This is an example of a false economy. Companies should make way for DevSecOps and integrate security throughout the whole development process.
Optimize your costs on cloud computing
The majority of businesses that have already adopted cloud are looking for ways to optimize their costs on it. And here if you don’t know how to do it, you should look for a partner who can help. Among the most popular best practices for cloud cost optimization are:
- Leveraging spot instances for serverless and stuff that don’t require high availability;
- Investing in reserved instances;
- Considering hosting in a different region;
- Using on-demand instances for a demo purpose for example;
- Making use of discounts many cloud providers offer;
- Using provider’s services instead of a home-grown solution that could be more resource-consuming.
Sustain and enhance support for remote working
Many tech companies from Wuhan to Silicon Valley have been forced into all-remote mode by the COVID-19 virus. If companies continue to support remote work (either full-time or part-time) after quarantine obligations, they can save a lot of money on rent, maintenance, and supplies. It is one of the IT cost reduction ideas that is easy-to-implement as many organizations have already adjusted to the new business reality and rebuilt their processes to suit the new normal.
Invest in automation
As we mentioned before, cost reduction is not only about cost-cutting but also about investment to create business value. Although companies, in general, are placing investments on hold due to coronavirus crisis, digital transformation plays an important role in the wake of COVID-19 - especially as organisations accelerate automation. According to the Gartner survey, the areas most likely to see more investment are robotic process automation (RPA), workflow automation, and cloud-based ERP technologies.
Automation can solve very many problems in the company. It can not only execute routine tasks quickly and accurately but also perform complex processes that help reduce costs and mitigate risks. For example, use chatbots to reduce strain on call centers or IoT to save costs in industrial manufacturing. However, it is a big misconception to believe that with automation technologies you will not need employees. In fact, intelligent automation will liberate and empower your employees rather than bind or displace them. It will change the skills and requirements the workforce needs. Creativity and problem-solving skills will become the most important.
Consider staff-related savings carefully
According to the recent Gartner survey, reducing workforce costs is the most difficult thing business leaders have to do in response to COVID-19. Many companies are left with no choice but to freeze hiring, delay or cancel new hire offers, freeze travel and entertainment (T&E), reduce salaries, eliminate 401(k) match, lay off employees, etc.
The main advice here is to take into account the follow-on impact of such actions. For example, those who leave might be the “best” and the only holders of key company knowledge. Thus, companies need to do whatever they can to keep within a company as many tech professionals as they can. Also, this will contribute to building a positive employer brand image that will matter a lot once you open hiring when a pandemic is over. Before firing employees, companies should consider some other options that can help reduce workforce costs: cutting wages, furloughs, reducing the workload, retraining employees, etc. In some cases, of course, employee layoffs are inevitable, and companies should communicate this message clearly and with empathy keeping in touch with employees for the sake of rehiring them when the crisis resides. The majority of senior finance leaders (49%) plan to begin hiring again before reintroducing other costs. After hiring, CFOs are most likely to bring back T&E (46%) and capital expenditure (Capex) (41%).
Reassess your IT outsourcing partnerships
Software development outsourcing during coronavirus is one of great IT cost reduction ideas. Before the pandemic, it was a popular choice for many companies. But now it is a life vest for businesses that need to cut costs on software development. According to the Telegraph, companies can save up to 30% on operating costs by offshore outsourcing. Also, a reliable IT vendor can step in to resolve immediate issues due to the lockdown with no disruption to service or quality.
If you have one or more IT outsourcing partners, you should analyze your contracts and take certain crisis-response actions:
- Make sure that all provider’s employees in a lockdown can effectively work remotely;
- Ensure that your offshore team complies with a number of security protocols during remote work;
- Plan for capacity rebalancing;
- Ensure that your IT vendor is ready to address a potential surge in the capacity;
- Your provider can guarantee the continuity of critical hardware and infrastructure services;
- Renegotiate rates and cooperation models if needed.
If your IT provider can not commit to any of the items listed above, you should look for another partner that will help you weather the storm. Countries in Asia and Eastern Europe are the most attractive IT outsourcing destinations. But Asia in comparison to Eastern Europe has appeared to be less prepared for responding to the coronavirus crisis. For instance, the BPM sector in India and the Philippines, two major delivery locations, is hit hard by travel restrictions.
Up to 50% of work is not being performed on some projects. In Eastern Europe, by contrast, the pandemic hasn’t impacted the continuity and quality of services most IT companies provide. The shift to the WHM has been rather smooth. N-iX is an Eastern European provider of software development services with 1000+ expert software engineers onboard. Our experts are ready to help your business navigate the coronavirus crisis.
Why choose N-iX as your IT outsourcing partner:
- We have over 18 years of experience in remote work and management of distributed teams and have built long-term partnerships (5+ years) with companies such as Gogo, Lebara, Anoto, CurrencyCloud, and others.
- N-iX is trusted in the global tech market: the company was listed among the top software development providers by Clutch, in the Global Outsourcing 100 by IAOP, recognized by GSA UK 2019 Awards, included in top software development companies by GoodFirms.co, and others.
- We use the agile approach in our work that ensures efficiency and flexibility. Also, we adapt to changes and strive to find the best solution to each problem.
- We help companies with automation, infrastructure configuration, migration to the cloud, DevOps to optimize their IT budgets.
- N-iX offers a Discovery Phase that allows to mitigate risks, optimize resources, and reduce development costs.
- N-iX specialists develop secure and scalable solutions in a wide range of industries, such as telecom, healthcare, industrial manufacturing, logistics, and others.
Many businesses have already implemented IT cost-saving strategies in the face of the coronavirus crisis. The main thing, however, is that they should not be ad hoc and spontaneous. CEOs should collaborate with other stakeholders to develop effective IT cost reduction ideas tailored to a particular business scenario. To reduce costs quickly businesses need to take timely and well-planned measures. They will not only ensure business survival but also position the business to succeed in the new reality.
- A practical way for CIOs to manage IT costs through the COVID-19 crisis by McKinsey
- Right-sizing your cost base for COVID-19 by Deloitte
- PwC's COVID-19 CFO Pulse
- CFO Actions in Response to COVID-19 by Gartner
- Leading Through COVID-19: 10 Rules For Rapid IT Spend Reduction by Gartner
- Short-term IT cost cutting by KPMG
- IT Cost Reduction: Using new technologies to reduce costs and gain agility by Accenture