Megavendors have a stranglehold on IT support budgets. Here’s how to release their grip.
Worldwide IT spending is expected to reach $4.5 trillion in 2023, according to Gartner.
That’s a staggering amount.
You would think with such a large sum earmarked for IT, companies would be well on the road toward extensive digital innovation.
But that’s not the case.
Instead, everyone seems to be stuck in the same old megavendor budget model with no end in sight.
Organizations are trapped in what’s called the 90/10 model, with a full 90% of their IT budgets spent on merely maintaining existing software. That leaves only 10% left for the digital initiatives CEOs are requiring of their CIOs and IT stakeholders.
Megavendor support dries up
The truth is, megavendor policies and support models are strangling IT budgets.
The constant upgrades they try to sell you don’t actually provide enough value to their customers. Instead of bringing better product performance, they’re more about how they can make you pay.
Legacy systems don’t see a lot of innovation. It’s rare an upgrade will contain a new feature that will truly add value to the application. However, if you don’t upgrade to the latest version, megavendors won’t support you. You won’t be able to log a ticket on an IBM software version that has already reached end of support. Consequently, organizations get stuck in endless cycles of paying for upgrades they might not need for fear of losing OEM support.
Release the grip
Forward-thinking companies are finding ways to optimize their budgets and reinvest those funds back into the organization earmarked for innovation.
The goal is to move away from the 90% operation/10% innovation model toward a budget that includes 60% for ongoing operations and enhancements with 40% digital initiatives.
There are several cross-functional overall benefits to moving toward a 60/40 model for digital transformation. According to McKinsey Digital’s “Using Digital Transformation to Thrive in the New Normal: An Urgent Imperative,” employee productivity levels rise 2.5x, speed to product can increase up to 40x, and survey respondents reported up to 50% improved customer satisfaction.
Our guide, “Budgeting in Turbulent Times: A guide to cost optimization,” includes three practical strategies to jumpstart cost optimization in your organization — all of which can reduce expenses between 30% and 50% — that can put your company well on the road to digital transformation and taking back control of your IT roadmap.