How to make better technology investments

6 steps IT departments can take to identify IT spend and optimize reinvestments in digital transformation initiatives.

How to make better technology investments
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Cloud. On-prem. SaaS. Varied business services. Multiple vendors. A shifting workforce.

These are the realities of contemporary hybrid IT environments, which create complex, rapidly changing management scenarios. While evaluating and managing a sprawling IT estate may seem like a daunting task, doing so can be a rewarding challenge that unlocks new efficiencies and leads to more optimal technology investments.

Today, IT spending is on the rise. Nearly half (49%) of companies anticipate that IT spending will grow in 2021. Much of this is to meet the new demands of digital transformation. Not only is it the top initiative (reported by 56% of survey respondents), 86% expect that the pace of digital transformation will increase (somewhat or significantly) in 2021. At the same time, the focus on cost savings (reported as a top initiative by 9% in 2020) is growing 3x (reported as a top initiative by 27% in 2021).

These findings from the Flexera 2021 State of Tech Spend Report highlight fundamental challenges for IT. The second annual report (based on responses from 474 executives and high-level managers in IT, each with significant knowledge of their organization’s overall IT budgets) evaluated the technology initiatives in which enterprises are investing. As spending grows, how can organizations find savings to reinvest in digital transformation, cloud computing, and other top priorities, such as cybersecurity?

Technology value optimization (TVO) is the IT management practice that provides visibility into a company’s entire hybrid IT asset estate (spanning on-premises data centers and the cloud environment) to unite management of IT services and finance. Below are six TVO steps that IT departments can take to identify IT spend and reinvest in technology initiatives.

flexera 2021 state of tech spend report 01 Flexera

Move beyond the shock of the pandemic

The COVID-19 pandemic clearly had a major impact on organizations and their pace of digital transformation. An increased willingness to move to the cloud (reported by 42%) is supported by growing cloud spend, which now represents 30% of IT spend. Due to COVID-19, 57% of respondents increased spend to date for SaaS, and 49% increased public cloud spend. Concurrently, spend for on-premises software is decreasing, as reported by 36%.

Behind these budgets are shifting business processes. While investing in the technology itself, organizations must stay focused on providing resources that meet the needs of increasingly complex hybrid environments. Getting back to the old normal isn’t the current goal. Adjusting to new needs of remote workers, and upskilling and reskilling your workforce, will all be part of new best practices. Visibility into what technology is being used is critical.

flexera 2021 state of tech spend report 02 Flexera

Capture wasted spend

Nearly a third—30%—of total IT spend is wasted. This number is both staggering and an indication of a significant opportunity. By capturing wasted spend, organizations have the chance to reinvest it more efficiently. Improved spend efficiency can support digital transformation initiatives by reallocating investments to the initiatives that enable business value creation. A decrease of 5% to 10% can yield significant improvements in what IT can deliver. For organizations with flat or decreasing budgets, improving spend efficiency can help them achieve new demands—from delivering innovative services, to doing so at a faster pace.

flexera 2021 state of tech spend report 03 Flexera
flexera 2021 state of tech spend report 03 Flexera

Discover, normalize, optimize

Capturing that waste requires a focused effort to discover, normalize, and optimize the services, software, and hardware running in the environment. Doing so isn’t without hurdles, but its necessity is clear. The top challenges to IT spend optimization are manual processes (reported by 83%) that delay operations and make tracking difficult.

Other top challenges, each reported by 79%, include understanding the cost of delivered IT services, difficulty getting data to optimize spend, and ensuring spend efficiency (avoiding waste). Organizations that rely on automated tools that capture data from varied sources (internal and external) can then normalize, rationalize, and present actionable data in near real time.

Map spend to business services

The top challenge in IT spend visibility, for the second year in row, is the ability to report on IT spend by business services, as cited by more than half (51%) of respondents. Business services, which often rely on multiple components and applications across multiple technologies, may share cloud resources, databases, hosts, processors, and storage with other services. How accurate and current is your business service mapping? How are assets used as demand fluctuates? Capturing this cost data is one of the most important elements of understanding where IT spend is going.

flexera 2021 state of tech spend report 04 Flexera

Consider the role of decentralized IT

Decentralized IT spend is set to continue, as business units in large organizations leverage the technology best suited to deliver business value. Business units, which currently control just over a quarter of all IT spend, may retain control over this IT (particularly if growth takes place via mergers and acquisitions).

Allowing line-of-business managers to make rapid decisions to meet their markets’ need can promote agility. Unfortunately, it can also promote redundancies, insufficiencies (in security and elsewhere), and overspend in the form of shadow IT. Central IT may influence this spending, but often doesn’t control it. Business units will be well served to partner with IT to be certain that IT asset management (ITAM) and software asset management (SAM) teams have visibility into all technology assets.

flexera 2021 state of tech spend report 05 Flexera

Allocate for growth

Efficient daily operations often command the majority of IT leaders’ attention. But support for growth and innovation is equally important for an organization’s success. And growth and innovation happen when IT aligns itself with business needs. Benchmark your organization against peers to identify—and correct—any significant imbalances. Today, central IT departments allocate 64% of their budget to running the current environment, with 36% allocated to growth and innovation.

Hybrid IT environments are likely to grow in both complexity and cost. As they do, the need for optimizing the value of your technology will only become more urgent.

Kevin Miller is the senior product manager at Flexera.

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