IT leaders have shaved between eight and 15 percent on average from their costs over the past two years, according to a major survey by Compass Management Group.
However, poorly drawn up contracts and excessive customisation of systems mean that many end user organisations are still paying up to 40 percent too much on their IT contracts.
Despite the trend toward commoditisation of IT products and services, Compass found that IT costs had not returned to levels in 2002, after the dotcom bubble burst.
“The trend for IT spending continues to rise, despite falls in hardware, software and services costs. Although we have seen falls in storage unit costs of 83 percent over the last five years, servers by 65 percent and network unit cost declines of 36 percent, these falls are far outweighed by the expense of over-configuration, under-utilisation and poor tensioning between supply and demand,” said Compass’s Steve Tuppen.
Compass surveyed 240 CIO level IT leaders for its report A clean slate, and found that the IT team is not necessarily to blame for this state of affairs.
The report’s co-author Nigel Hughes said, The reason IT costs remain so stubbornly high after cost-cutting programmes against a background of falling hardware prices is because organisations are reluctant to change and allow their suppliers – or their in-house IT function – to take advantage of optimal management practices and the cost efficient technologies.”
Hughes said Cloud computing and virtualisation drives were laudable but did not necessarily deliver standard services. He suggested that whatever the delivery method, transparent pricing policies where essential to create the incentives necessary for originations to move to standardised IT.
With transparent pricing “customer specific requirements can be priced in a way which allows managers to make value-based decisions on whether the customisation is worth the investment, which can have a dramatic effect on overall demand management.”
Compass, which specialises in benchmarking, believes cost reductions of 40 percent or more are available to organisations that rigorously pursue standardised delivery of IT services, combined with transparent pricing, both internally and with external suppliers.