Sourcing Strategy to Optimize IT Spend
There has been a raging debate (on this blog as well as all major media outlets) on the right level of IT spending for carriers. While, generally speaking, the participants in this debate seem to be converging on the central theme of shifting to a ROI based prioritization and governance of IT spend, ruthless management of Total Cost will continue to be an imperative that impacts the ROI.
Most organizations have leveraged sourcing in some way or the other to optimize total costs. While sourcing is a strong lever, it is also important to assess the right sourcing strategy in optimizing the total cost. Managed services models provide an excellent opportunity to manage cost structures while shifting to a variable cost model. Using managed sourcing in conjunction with other strategies (like Grid computing) can be very effective in managing total cost to address the variable demand.
We all know TC = FC + VC*Q. For the IT landscape Q (Production) is the same as demand for IT in an enterprise (both discretionary and non-discretionary). Functional areas that have potential significant variability in demand (or seasonality – for example processing claims in the hurricane season or a new product launch) can benefit from leveraging models that lower fixed cost (and allow to not plan infrastructure and systems for the peaks) and use variable but predictable (tied to business outcomes) costs.
Let’s take a look at a model for optimizing Total Cost
As is evident, sourcing strategy ends up being an integral component of IT strategy to manage total cost. However, the application of sourcing strategy and the use of other mechanisms to carefully plan out fixed investments is key for the outcome that we are all looking for.
What’s your take?
