CIOs are facing pressure to cut costs while simultaneously being pushed to drive innovation and growth. Adding an additional layer of challenge, the evolution of AI has been increasing IT spending, along with the need for more security-based platforms and solutions, infrastructure modernization, and consistent data management. Today’s AI workloads are simultaneously driving selective repatriation as well as massive cloud growth. The market is growing so rapidly, the escalation of AI is accelerating multiple deployment models, all at once.
This dynamic has become the new normal. Some analysts estimate as many as 87% of enterprises are already using hybrid strategies to accommodate their exponentially increasing workloads. The advantages of hosting any workload in the cloud are, in many cases, magnified when applied to AI workloads. Scalability and elasticity are increased, and standardization and connectivity can be enhanced across the organization. Improving efficiencies helps save money.
Now more than ever, CIOs must adopt a strategic approach to cost containment, prioritizing business criticality over blanket budget cuts. In addition to leveraging cloud-native technologies, automating repetitive tasks, optimizing software licenses, and consolidating redundant systems can all significantly cut costs without limiting innovation.
Key tactics include:
- By applying methodologies of Strategic Portfolio Management (SPM), available budgets can be directed to strategic business goals where they are most effective and vice versa. If budgets need to be trimmed, cuts can be made in the areas with the least impact on strategic business objectives.
- Identifying mission-critical business capabilities and the IT that supports them is another tool of SPM to understand where investment is most relevant and differentiating against the competition. Budget cuts can be applied to commodity IT, for example, where duplications of functionality in multiple IT systems can be identified. Application rationalization helps cut operating costs without hurting business and innovation.
- On-prem IT often makes innovation more difficult and more cost-intensive. However, with cloud infrastructure, organizations can leverage generative AI, agentic AI, data analytics, and other modern technologies. A smart cloud migration plan can make such transitions not only successful but also cost-effective. Methods of SPM and Enterprise Architecture Management (EAM) help define a feasible cloud strategy.
- With critical workloads in the cloud, AI agents can be trained to replace repetitive, time-consuming, and error-prone manual tasks, thus making their execution not only more efficient, creating cost savings, but also more reliable.
- From an operational point of view, product development and test systems can be stopped automatically in the cloud, and infrastructure can be rightsized, resulting in considerable additional savings. Strategic partnerships with cloud-native consulting companies can help bring all these tactics together, aligning strategic infrastructure shifts to turn possibilities into reality.
AI’s Role in Reducing Costs
AI can be a major driver of IT spending, but it can also be a cost-effective efficiency generator. Automation and AI are critical in eliminating routine operational tasks, significantly reducing manual errors, and accelerating delivery cycles. AI agents, in particular, can be a powerful technology tool to help achieve a reduction in costs while creating operational efficiencies. Additionally, the rise of Small Language Models (SLM) and domain-specific AI models enables organizations to leverage AI strategically for precise objectives, simultaneously keeping AI-related spending under control.
To maximize the impact of automation and AI, high-quality, accessible data is essential. An AI model is only as good as the data it is trained on. In cost-sensitive environments, CIOs should prioritize budgets to identify valuable data pools, ensure data quality and integrity, and make this data readily available to AI models. Cloud technologies and cloud transition planning can significantly reduce the cost of data management by automatically analyzing and optimizing data storage. When cloud infrastructure is used in a proper way, built to meet the strategic business goals, it can provide significant cost advantages, while providing the flexibility to meet current and future needs.
In the current market, especially in the U.S., GenAI dramatically impacts every role within the office workforce. CIOs can utilize AI-driven insights to optimize infrastructure use, predict demand accurately, and automate support workflows. This frees up resources, allowing greater focus on strategic innovation initiatives, enhancing organizational efficiency, agility, and overall competitiveness.
Identify Waste and Eliminate Resource Redundancies
Enterprises often waste resources on redundant tools, underutilized software licenses, overly complex multi-cloud environments, and insufficient financial operations (FinOps) practices. To combat these common issues, CIOs should regularly audit their technology stack, utilize cost-monitoring tools to identify unused or overlapping solutions, and streamline their vendor ecosystem. Implementing robust FinOps practices can provide detailed financial visibility and accountability, optimize cloud expenditure, and improve resource utilization.
In addition to leveraging hyperscaler tools to optimize cloud resource utilization, EAM methods are crucial for managing on-premises and hybrid environments effectively. Key contributors to reduce IT costs can include:
- Application Rationalization to eliminate duplicate IT functionality
- Value Stream and Customer Journey Analysis to uncover gaps in IT support
- Data Lineage and Storage Analysis to identify and address manual data exchanges, redundant storage, and inefficient integrations, ensuring cost savings and regulatory compliance
- Vendor Lifecycle Analysis to detect outdated or unsupported software, reducing both risk and unnecessary expenses
- Technology Debt Management to streamline, modernize, and standardize technology usage, facilitating strategic vendor agreements and further cost reduction
Integrating FinOps best practices into these strategies ensures proactive financial management, eliminating hidden inefficiencies and redirecting resources towards strategic business initiatives.
Organizational IT and Financial Collaboration Is Economically Essential
Close alignment between CIOs and CFOs is essential in today’s economic climate to ensure technology investments directly support strategic business goals and financial performance. Collaboration helps prioritize impactful projects, accurately forecast ROI, and justify critical investments. Successful examples include joint budget workshops to align IT spend with company objectives, implementing joint IT-finance dashboards for real-time financial transparency, and using scenario planning to ensure agility in investment decisions.
In today’s fast-paced economy that faces changes in regulations at an unprecedented rate, agility and adaptability are more important than ever. While many organizations have made the transition to an agile enterprise in development teams to a certain extent, budget planning is still often stuck in fixed cycles with too many intervals to combat challenges as they emerge. A cloud-based infrastructure with its subscription-based flexibility, combined with SPM methods to align budgets, provides more timely flexibility to business needs, and is a great foundation for all C-Suite roles to align and collaborate better.
In addition, CIOs and CFOs at non-technical companies should keep in mind that they do not work for an IT company. While it’s important to have certain operational, critical, or differentiating in-house knowledge, it’s advisable to leave other tasks to external experts who bring deep industry expertise and a best-practice approach. This external view not only helps get things done but can also ignite internal agility and efficiency by learning from those experts. The root cause of failed cloud transition projects is often the budget set by a CIO and CFO that relied solely on internal resources.
Many digitalization projects fail because they are approached solely from the perspective of an investment in technology. The human dimension is often underestimated. It is crucial to consistently involve employees and address their needs. It is also important to identify employees across all departments who act as change champions.
Overall, a robust compilation of smarter vendor negotiations, strategic and well-managed multi-cloud adoption, and using automation and AI to handle routine work and cut down on duplicate platforms and tools can reduce economic waste and free up time and resources for valuable projects that can bring in more growth, innovative initiatives, and new opportunities.
