Cost optimization is perpetually one of the top agenda items for most healthcare CIOs. Why? Because leadership and business rely on IT to enable more innovation and organizational strategy while at the same time costing less. And don’t forget—all of this has to be more secure and stable. In other words Faster, Better, Cheaper… and Secure.
But cutting costs alone isn’t always the perfect solution. To meet today’s challenges, IT must deliver financial transparency, a continuous discipline of cost optimization focused on business outcomes, and of course reduce costs where possible. The overarching principle to remember: don’t reduce costs at the expense of IT service quality. At Children’s Health in Dallas, as we strive to meet the demand for high quality solutions that are optimized for business profitability, we are taking a three-pronged approach to increasing the value of IT to the business.
Do you want to begin optimizing? If so, take a look at your existing overhead with vendor contracts and maintenance agreements, as these are a great place to start. Begin by tracking the annual spend for all major vendors. When you do this, you’ll be amazed at how opportunities to leverage volume discounts will quickly present themselves. Armed with that knowledge, start reviewing all enterprise contract renewals for opportunities to secure the best pricing and terms—but you have to plan ahead and do the work and negotiations at least six months before expiration so that there is time to negotiate, or worst case, seek alternative solutions. Your organization may also find that by delivering applications differently, you will have a positive impact on the application’s total cost of ownership (TCO). Many vendors now offer SaaS models as a low risk, low cost method for delivering the same application in a vendor-hosted environment. SaaS solutions reduce operational overhead within the data center, lessen the burden on IT staff to maintain these applications, and often times offer a more feature rich application than the on-premise packaged product. So SaaS models, bear a close look.
"The overarching principle to remember: don’t reduce costs at the expense of IT service quality"
It’s time to develop a cloud strategy if you don’t have one. Cloud providers are touting their ability to save us money, but it’s our job to define what that looks like for our organizations. The journey to the cloud necessarily involves conducting application assessments on your active portfolio to better understand where the cloud might deliver on the promise of faster, better, cheaper for each of your applications. Certainly, the cloud is not a one-size-fits-all solution for an organization—rather, it will be an application by application or even application component (archive storage, backups, databases) based decision. Do your research because simply re-platforming an application to the cloud doesn’t traditionally save money. In some cases, it may cost more. That’s why it is important for you to recognize that not everything in the data center will be an optimal fit for the cloud environment, which means we need a hybrid multi-cloud strategy. As you perform this application assessment, start to also define your own internal platform costs for servers and storage. By knowing your platform costs as an internal service provider, you’ll be in a better position to maintain applications on the appropriate platform while optimizing costs.
Internal data center platforms need to be cost optimized as well. The traditional 3-tier and converged architectures are no longer a one-size-fits-all solution and many times carry a very high TCO. Hyper-convergence is a proven platform that uses more commodity-based servers to support the enterprise requirement of our application portfolios. Using a hyper-converged platform is not a one-size-fits-all solution either, but as we continue to virtualize our application environments, it is a practical approach to optimizing our data center overhead.
As CIOs begin to focus their message and metrics to how IT is supporting the enterprise, it becomes our responsibility to provide financial transparency on the cost of conducting digital business. Start by identifying and assigning the platform and labor costs to each application as a way to communicate the business costs per service. As the cost per business service begins to be communicated in terms the business understands, the conversations will shift from a technology focus to business partnership. From that point, we can start the next level of optimization and rationalization of the application portfolio. By rationalizing the use and impact of each application in the portfolio, we have the opportunity to reduce application overlap, sunset underutilized applications and reduce IT complexity. Refining these financial models is an iterative effort and will require a continual cycle of improvement to being aligning to the language of the business. As these efforts begin to align, the conversations will mature to the point where IT is not only a business partner but a business innovator.
Improve Demand Management
Shifting the focus from cost reduction requires financial transparency and the ability to run IT like a business. One of the most significant ways to increase the business value of IT is to more effectively manage the supply and demand of our resources. Managing the demand side of the equation requires a prioritization of efforts with a focus on the impact and benefit to the organization—work that isn’t strategic should be deferred. Supply side management has a similar approach with removing the waste or non-value add steps within many of our processes. Map out your project, enhancement, maintenance, and break-fix workflows to identify efficiencies, remove the wasted time and ultimately increase the availability of IT to do more work for the business initiatives.
Building a good digital business partnership can be daunting, but it’s not impossible—it requires a good governance process and the support of executive leadership within the organization. By enhancing the development of business cases and justification for projects through governance, the decision-making process will begin to increase IT’s value to the digital business. Then as these efforts continue to mature, be sure to build in program features where you continually review the projects underway and the organization’s demand to ensure the work portfolio remains aligned to the business agenda. Doing so will help you hone your focus and cancel projects that no longer align with the organization’s strategic direction.
By following this three-pronged approach at Children’s Health in Dallas, we have removed over 30 percent of the cost from IT budgets and continue to identify more opportunities as we mature our financial models. In addition, executive-level sponsored governance structures have strengthened the partnership between IT and the business, ultimately right sizing the supply and demand dilemma. As a result, the business is now sharply focused on prioritizing strategic work and understanding the requisite IT effort needed to support organizational initiatives and digital business strategies.