The role of IT cost optimisation in weathering the economic storm
By Gudmundur Adalsteinsson, Chief Sales Officer, Crayon
Technology is never an area without big stories, but there are two right now which tower over everything else that’s happening.
On the optimistic side of things, it feels like an AI revolution that has long been envisioned is finally in full swing. Since the launch of ChatGPT late last year, businesses and governments around the world have been busily getting to grips with what it means for them, while some technologists are viewing it as a fundamental shift in how things work on the scale of the internet itself.
Not, of course, that AI itself is anything new, as even the ideas behind ChatGPT have been around for some years. Rather, it’s the technology reaching a turning point where it suddenly outdoes society’s expectations and proves years of hype to be well-founded – and it’s also possible that the tech sector has seized it as a much-needed story about a sunny future for the industry.
That’s because the other big story is not quite as positive. The sector has been facing the same perfect storm of economic headwinds as the rest of the economy, immediately after a significant expansion phase during the Covid-19 pandemic. As a result, we have seen significant workforce reductions taking place across technology-related businesses: according to the tracker layoffs.fyi, the number of staff affected was, at the time of writing, approaching 200,000 in 2023 alone.
Tackling the balance of cost and value
For businesses, both in tech and beyond, it’s important to remember that employee headcount is not the only lever that can be adjusted when projected revenue falls short of projected expenses. Specifically, as cost centres across operations get re-evaluated, it’s worth looking closely at IT spending and how well it meets an organisation’s actual needs.
Of course, it’s become a cliché to say that every business is now a tech business, but in terms of expenditure there’s a real truth to that phrase. Especially following the significant acceleration of cloud- and SaaS-enabled working in recent years, it’s becoming hard to imagine a medium or large business, in any sector, which does not invest heavily in technology as a non-negotiable enabler of productivity.
However, while there might be little appetite for withdrawing from the cloud, Crayon’s recent research report, ‘The state of IT cost optimization in 2023’, found that managing down and maximising value from IT expenses is becoming an increasingly significant priority for businesses. For instance, 47% of the 2,008 IT decision makers we spoke to – spread across 17 markets globally – told us that they had implemented a framework to measure the success of IT cost management initiatives within the last 12 months, while 90% reported that they have at least some processes in place to identify and remove unused software licenses.
This represents important progress because, as we know from experience, managing cloud spend in particular can often be a challenge for businesses. Software licenses are just the tip of the iceberg for a complex picture which can also include issues such as contractual consumption commitments with cloud providers, lack of internal clarity around budget responsibility, unmonitored workloads being spun up by engineering teams, and difficulty consolidating legacy and new solutions.
The outcome is that just 51% of those we surveyed said that their businesses have an exact understanding of IT spending, while 47% identified cost optimisation as the single biggest challenge they face around managing their IT estate.
A smarter IT optimisation future
Needless to say, in a challenging economic climate, businesses cannot afford to overspend on IT – especially when doing so risks losing the human beings who sit at the heart of every business’s value. There is also, however, light at the end of this tunnel as businesses implement modern IT cost optimisation practices. 62% of businesses now have some level of FinOps practice (though just 11% say it is fully implemented) and 77% have a Software Asset Management practice.
These small majorities are particularly exciting in this picture because they open the door to a significantly more effective, efficient future for IT cost optimisation. When IT spending oversight is built into the IT estate itself, becoming a truly data-driven practice, businesses can start to look for solutions in the kinds of innovation that the technology industry is now seeing as its bright future.
Establishing the right contracts with vendors and unifying IT systems is a complex first step in this process, but truly effective IT cost optimisation is an always-on operation. When deeper insight into how resources are being used – and what resources are being paid for – are brought together into a single view, businesses can start looking to AI-based policy enforcement to ensure that IT spending never again outgrows usage.
After all, the biggest barriers to effective cost optimisation (according to our research) are a lack of time for, knowledge of, and insight into the problem amongst responsible stakeholders. That sounds to me like a perfect venue to apply the speed and data-fluency of powerful new AI approaches.
