The IT Efficiency Phase Model

Another basic but beneficial framework used to evaluate an organization’s potential for material reductions in IT spending is the IT Efficiency Phase Model (IT-EPM).  The IT-EPM illustrates the required levels of organizational change and disruption relative to the expected achievement of efficiency in IT service delivery.

The level of change required to achieve a desired efficiency represents a critical concept for organizations wishing to cut costs. In many organizations, the scale of change acts as the single biggest obstacle for realizing savings. Whether from overcoming simple inertia or addressing real fears of job loss, change management needs often impede progress significantly greater than simply not knowing which efficiency levers to pull.

For individuals wishing to reduce IT spending, understanding the level of change the organization is likely capable of digesting as well as their own realistic span of control is helpful in knowing whether to pursue larger scale opportunities or focus on smaller tactical activities.

Put simply, smaller scale efforts will result in smaller scale savings. Larger changes, such as organizational consolidation, typically deliver significantly greater levels of efficiency. Ultimately, given the law of diminishing returns, some efforts may simply cost more to implement than the savings they deliver.

The degree to which IT efficiencies can be achieved in an organization is frequently a function of the level of change the organization is willing to engage in.

The degree to which IT efficiencies can be achieved in an organization is frequently a function of the level of change the organization is willing to engage in.

A. Evident Change

At one end of the spectrum, an organization that has not previously contemplated ways to reduce unnecessary IT spending will often find opportunities to implement obvious, low impact, short term changes that result in immediate savings.  The result of these activities is frequently some level of spend reduction with minimal or no internal or external organizational impact.

B. Internal Reorganization

To achieve broader and more material savings, an IT organization, or more frequently multiple internal IT organizations, may undergo substantial realignment and reorganization of a variety of IT functions resulting in a more efficient centralized and standardized operating environment.  The result of these types of changes is frequently significant internal impact relative to the IT organization(s) coupled with material IT spending reductions in the mid to long-term time horizon.

C. Business Transformation

Given the high level of dependency between IT spending and broader organizational operations, substantial business transformation across an entire organization typically results in the largest longer term reductions in IT spending, assuming the transformation includes centralization of IT functions as well. Changing the way the entire organization is structured in order to leverage a common, optimized set of systems and processes, frequently results in substantial organizational flux during the transition to a different operating model. These types of transformation events are frequently driven by crises or other large-scale restructuring efforts such as post-merger integration.

D. Diminishing Returns

In some cases, the level of control or application of resources can exceed the benefits associated with eliminating every potential redundancy or addressing every exception.  The result of efforts to achieve 100% compliance or standardization can result in additional overhead driving net increases in IT spending.