4 key steps for optimizing your IT services portfolio

From the CEO’s perspective, an optimized IT services portfolio maximizes cost efficiency, flexibility, and scalability. It enables the organization to focus on its core business while managing risks and accelerating time-to-market for new products and services.

From the CIO’s perspective, an optimized IT services portfolio ensures strategic alignment with business goals, enabling the organization to allocate resources strategically with a focus on projects that directly contribute to those goals because CIOs have access to expertise and specialized skills not readily available in-house.

Highly optimized portfolios leverage outsourcing to ensure that commodity-based sourcing is offloaded to outsourcers, freeing up internal teams to focus on strategic projects that add value and effectively manage costs.

The challenge for most organizations, however, is knowing how to assess whether their IT services portfolio is properly optimized. The following steps will help enable IT leaders to assess the current level of optimization in their IT services portfolios and understand the impact future demand will have on maintaining or improving the overall services portfolio.

1. Analyze your distribution of spend across service types

Demand for third-party IT services continues to rise despite ongoing economic challenges. Companies continue to look outside the organization to staff critical roles and major projects with third-party IT services talent.

Taking stock of the distribution of services across service types will expose imbalances within service areas and opportunities to assess the strength of spend allocation across your provider base. Armed with multiple views of your IT services spend by vendor, services type (consulting, advisory, systems implementation, application support, or infrastructure support), and geography provides aggregate views of spend from a variety of perspectives.

A view of historical and current spend by provider helps organizations assess the efficiencies of spend allocated across your portfolio. It also helps identify areas of risk where provider spend has declined and opportunities to reopen terms for providers whose spend has increased.  

2. Forecast demand

Aggregating demand for IT services is the single most impactful lever companies have at their disposal when looking to negotiate with their IT services partners for improved terms and cost reductions. Empowered by a view into future demand and the ability to apply that potential demand to your current inventory of IT spend, IT leaders will be better equipped to identify areas of leverage and risk as providers’ market share of your IT spend morphs over time.

Understanding the current distribution of IT services spend by category coupled with a view of potential incremental demand will aid in assessing the leverage you have with each of your key strategic partners.

3. Assess performance

The next step in assessing the strength of your current third-party IT services portfolio is to take stock of the performance of your providers internally. A highly optimized services portfolio isn’t solely focused on cost, it must also be efficient in its use of the resources engaged.

Periodically assessing the efficiency and performance of your third-party providers will expose inefficiencies across both delivery and support. Clear signs of inefficiencies should be investigated, and you should work with your providers to mitigate those inefficiencies. Project delays, high attrition levels, and timeline extensions are direct indicators of delivery inefficiency that need to be addressed.

Consistently missed service levels, large backlogs of enhancement requests, and high levels of attrition drive down the efficiencies of managed services support and impact business productivity. Taking stock of the performance and efficiency of your supplier base will be a valued perspective that will inform future sourcing decisions on net-new demand or shifts in sourcing preferences.

4. Survey the market

The IT services market is facing an unprecedented mix of headwinds and tailwinds that are complicating how customers engage IT services providers. Strong headwinds like the Q2 2022 “great rate reset,” unprecedented attrition, and resource scarcity have companies struggling to source, secure, and maintain the talent they need at affordable costs.

But advances in artificial intelligence and quantum computing have emerged with the promise of opportunity that IT leaders must assess to determine when and how best to take advantage of such technologies.

With costs for IT services outpacing the heightened cost of living adjustments, companies can’t afford to pay more than what the market can offer. More companies are taking the offensive when looking for opportunities to reduce their overall IT services spend.

The bottom line

Optimizing your IT services portfolio is a process, not a singular project or event. Continuous and rigorous evaluation of your sourcing strategies, provider performance, go-to-market strategies and ongoing management of provider performance will ensure you are periodically testing the optimization of your investments to ensure your return is maximized.

Pairing objective metrics on what the market offers with your demand will effectively position your organization to make the best sourcing decisions that drive the most value and make the best use of your investment dollar.

Empowered with a view into the distribution of current third-party IT services spend by service type, projected demand, provider performance metrics, and real-time market intelligence, companies are realizing cost optimization opportunities of 10% to 20%, sometimes even more.