January 08, 2009

Eighty percent of today's IT cost is devoted to running the business, leaving very little for changing the business and investing in innovation. And recent analyses suggest that the cost of running infrastructure is increasing disproportionately to the cost of application development, further impacting business innovation.

So does that mean that banks should rationalize their IT spend by cutting the cost of ongoing operations and provision more for strategic investments? Unfortunately it is far more complex than that. Incremental measures, ad hoc cost cutting and siloed restructuring has happened for a while and has yielded very little.

The root of the problem lies in the IT cost model itself. How can IT be a self-funding function keeping itself aligned with changing business imperatives? Can an organization set a road map for such a cost structure? Absolutely.

Taking a transformational approach that mitigates risk while realizing benefits is the key to rebalancing IT costs and enabling programs that will allow organizations to realize a competitive advantage while achieving real innovation. Changing the IT model from one of cost to self-funding can be achieved by implementing three inter-dependent initiatives:

  • Infrastructure Optimization.Start with server virtualization; end with adopting a utility computing model. The objective is to make cost centers chargeable, thereby supporting better governance and planning.
  • Application Re-architecting. Simplify and re-architect applications through better alignment with business imperatives. Adopt operating models based on SOA.
  • Strategic Resourcing. Devise and implement global sourcing strategies. Enhance offshore leverage based on better cost models around network delivery and managed services.,

In adopting a multistage transition, cost benefits can be realized at each stage -- for example, gaining cost savings by retiring and consolidating applications, or by transitioning resources to low-cost service providers, in order to gain seed funding for the following stages of transition.