《BCG:2023美国政府如何降低IT成本研究报告(英文版)(11页).pdf》由会员分享,可在线阅读,更多相关《BCG:2023美国政府如何降低IT成本研究报告(英文版)(11页).pdf(11页珍藏版)》请在三个皮匠报告上搜索。
1、 2023 Boston Consulting Group1The US federal government has made significant investments in IT across its agencies to catch up totechnology adoption rates in the commercial sector.And while government IT is growing quickly incapability,it is also growing in cost.The Department of Defense(DoD)alone b
2、udgets over$45 billionannually to IT,and in 2022 President Biden called for an 11%boost in IT budgets for federal civilianagencies.Additionally,the number of technologies and products that the DoD is allowed to purchasehas increased significantly,complicating the decision calculus and increasing the
3、 need to ensureoptimized and intentional spend.How the US Government Can Reduce ITCostsAUGUST 28,2023 By Ashwin Bhave,Greg Boison,Matthew Schlueter,Ryan Ordway,Noelle Herring,Mack Andrews,and Vanessa HernandezREADING TIME:15 MIN 2023 Boston Consulting Group2Federal agencies have made numerous effort
4、s to deploy their IT funds more efficiently,from costtransparency and government-wide category management to agency-specific cost reduction efforts.Yet,substantive cost curtailment and spending improvements have been rare.From our case experience,we have identified the leading issues behind this fai
5、lure of US governmentagencies to generate IT cost improvement,especially when compared with commercial peers,acrossthree key categories:budgeting and funding processes,savings program execution,and governmentconstraints.And we offer five key strategies that can close the gap to commercial best pract
6、ices andimprove cost outcomes.Budgeting and Funding ProcessesShadow IT.Whereas commercial organizations tend to focus on expenditures,government agenciesfocus on program budgets,with IT just one of many embedded components.This approach typicallygives little visibility into“shadow IT”IT spending tha
7、t is hidden in adjacent budgets or vendorcontracts.As a result,while the amount of money spent by each program is clear,the percentageallocated to IT is not,and senior government officials are thus unable to budget enterprise-wide ITspending effectively.In fact,when cost transparency is introduced,w
8、e oen find that IT expendituresare up to 30%higher than anticipated due to this hidden spending.Lack of Oversight.In commercial entities,the CIO or CFO typically controls most IT spending or atleast has a high awareness of it.Business units cannot make major IT purchases without properauthorization,
9、and shadow IT is one of the first targets of commercial cost-reduction efforts.While the government has introduced a number of cost-transparency measures,thereis still a significant lack of CIO oversight.In contrast,while the government has introduced a number of cost-transparency measures,such asbu
10、siness management practices that align costs to IT services,there is still a significant lack of CIOoversight.With hundreds or thousands of budget holders in any given government agency and multiplecontracting mechanisms,such as government-wide acquisition contracts and multi-agency contracts,many b
11、udget holders can make major IT purchases using these agreements with just the approval of acontracting officer,without CIO approval or awareness.2023 Boston Consulting Group3Budget Incentives and Risks.Companies focus on metrics such as overall ROI,payback period,andweighted average cost of capital
12、 when making business decisions.It is incredibly challenging forgovernment leaders to do the same due to the higher risks associated with budget shortfalls.Forexample,the DoD might budget a large amount of money to be spent in year one with the aim ofsaving money in years two to five,but if the effo
13、rt fails to deliver,there are much greater potentialadverse effects from the budget shortfall in years two to five than would be the case in a commercialbusiness.Additionally,agencies have much greater incentives to spend the annual amount budgeted to them,asthose that do not do so not risk having i
14、t reduced in the following years.While commercial leaders also“spend to budget”to some extent,they do so to a much smaller degree because they are ultimatelymore motivated to maximize profits each year.As might be imagined,spending to budget leads tosuboptimal purchasing behavior,including large spi
15、kes in spending on commercial off-the-shelf(COTS)IT in the final two months of the fiscal year.(See Exhibit 1.)Savings Program ExecutionLack of Consumption Data.The analysis of consumption data is one of a corporate CIOs mostpowerful tools,but government agencies struggle to obtain such data.Many go
16、vernment CIOs dontknow how many laptops or other pieces of hardware they purchased in the prior year,how many 2023 Boston Consulting Group4licenses of a given type are deployed on their networks,or the extent to which deployed licenses areregularly used.Without this baseline data,they cannot identif
17、y areas of underutilization where theymight reduce costs.And it is extremely difficult to cut back on new purchases and license renewalswithout knowing whether it will adversely affect an agencys mission.Overreliance on Negotiations.Commercial CIOs are typically more successful in achieving savingst
18、hrough a mix of discounts and demand management than via negotiations alone.In contrast,manygovernment cost-containment efforts focus primarily on vendor negotiations,oen due to a regulatorysplit between the governments procurement organizations and the organizations that generate the ITrequirements
19、.This is true even though agencies may not be able to negotiate with strength,given the lack of insightinto their own consumption.If an agency does not know how many licenses it actually needs,forexample,it has little room to maneuver by purchasing fewer licenses or shiing a portion of the userbase
20、to a less expensive license.In addition,agencies typically lack insight into their IT providers business models that they could useto their advantage.Commercial vendors deeply research the opportunities and the organizations theyare selling to,given that they are financially rewarded for winning wor
21、k and maximizing profitability.But government contracting officers are given incentives for complying with regulations andestablishing contracts in a timely manner.They also tend to deal with numerous commercial bidders,making it more challenging to understand the nuances of each firm.This removes t
22、he potential forsavings that might be gained through conducting the negotiations with high-quality information abouttheir counterparts.Instead,they must focus on getting a deal done on schedule while satisfyingmission requirements and staying in budget.Finally,a common vendor tactic is to move slowl
23、y enough to ensure that negotiations conclude asclosely as possible to the end of a contract,knowing that the government has a low risk appetite,thatthere cant be any gap in service,and that contracting offices are primarily evaluated on timelineperformance.Government ConstraintsA third key issue th
24、at limits agencies ability to control IT spending is the governments unusual way ofworking vis-vis commercial entities;in particular,cumbersome contracting regulations and extensivecustomization requirements.Unique Contracting Regulations and Ecosystems.For vendors,working with the government issign
25、ificantly more complex and inefficient than working with commercial partners.For example,unliketypical commercial contracts,government contracts usually include indemnity clauses that couldtheoretically cost vendors billions of dollarsa significant contracting hurdle.2023 Boston Consulting Group5To
26、protect themselves,IT hardware and soware producers typically use value-added resellers to sellor distribute their products to the government,paying them a fee that is oen passed on throughhigher pricing.Other complications include reporting requirements and decision protests(that is,theright of ven
27、dors to protest a defective bid or a contract awarded to another player).And governmentbuyers sometimes request multiple agreements per agency,with significantly longer timelines(andprotest concerns)for establishing agreements.These inefficiencies have a significant cost for vendors,which can also b
28、e passed on through higher pricing.Customization Costs.Government organizations are known for purchasing COTS IT solutions andthen customizing them heavily during deployment,oen because of perceived distinct requirements orbecause using COTS solutions would require business-process changes that the
29、government does notwant to undertake.Unfortunately,customization increases timelines and costs during deployment and,over the long term,creates an even larger problem as subsequent customizations boost complexity(and reduce functionality),leading to higher maintenance costs.Strategies for IT Cost Co
30、ntrolSome government challengessuch as the need to work within government contracting rulesareimmutable.In other cases,the costs,and risks,of transforming a heavily customized system are simplytoo high.Nonetheless,agency CIOs can address many of their challenges through sustained,determined efforts
31、if they first lay the proper groundwork.Our experience highlights five key strategies.Agency CIOs can address many of their unique restrictions and challenges if they firstlay the proper groundwork.Note that CIOs should not expect to use all the initiatives offered here.Rather,they should prioritize
32、them and ensure up front that they have the leadership agreement required to follow through anddeliver change.Take a portfolio approach.If agency CIOs are to justify investments to reduce IT costs,given theinherent risks,they need to create highly detailed forecasts that go well beyond ROI.These sho
33、uldinclude,at a minimum:2023 Boston Consulting Group6Detailed forecasts will help the CIO take a portfolio approach to the agencys cost-savings initiativeslooking at its IT investments as a wholeand manage timing and risk in budget cycles.For example,cost reductions should start with quick wins to r
34、ealize immediate impact and begin funding thejourney.As cost-reduction efforts increase,agencies should balance higher-impact,longer-term,andmore difficult initiatives with ongoing initiatives to maintain momentum and ensure a positive cashflow.Note that the right contracting strategy is also import
35、ant to funding the investment journey.With a“fees-at-risk”contracting structure,for example,the government can establish a contract with aminimal upfront fixed fee that ties the majority of the vendors fees to savings targets.This structureperfectly aligns the governments incentives and those of its
36、 vendor support team;in addition,ifsavings targets are not achieved,the governments investment costs are greatly reduced.Target the most entrenched contracts.Most agencies have at least one large contract with anentrenched provider delivering a mission-critical good or service.Given its unique offer
37、 or expertise andits deep understanding of the government organization,the vendor appears to have all the power innegotiations.Not surprisingly,the government tends to avoid renegotiating these contracts,and thevendor is able to increase its margins over time.This is a fairly common predicament for
38、anyorganization,but especially for the government.While renegotiating these incumbent contracts may appear challenging,it is worth remembering thatthey are oen the vendors most profitable contracts.Government agencies can level the negotiationplaying field by developing their own information advanta
39、geestablishing an analytic baselineunderstanding of the vendor and the contract and executing a rigorous negotiation plan.Dependingon the contract type,some government agencies have achieved savings of 15%to 20%in this way.Attack the entire category management process.The savings above can be furthe
40、r driven home byimproving the rest of the category management process.(See Exhibit 2.)As mentioned earlier,negotiations are only one tool at a leaders disposal.For example,while identifying IT needs,leaderscan challenge internal demand and push back against the assumption that historic levels are re
41、flectiveof true requirements.Estimates of where the impact will be realized(for example,in the CIOs budget or in its shadowIT spending)Whether the impact will be the avoidance of a previously projected spending increase or theachievement of a net decrease in spendingThe years in which the investment
42、 will be required and those in which the savings will be realized 2023 Boston Consulting Group7In addition,when determining their ultimate sourcing strategy,leaders should resist the status quo andassess whether alternative options,such as different contract mechanisms and bundling or unbundlingrequ
43、irements,can create savings.Leaders should resist the status quo and assess whether alternative options can createsavings.Finally,when implementing a contract aer negotiations,leaders should ensure that they continue tolook for opportunities to save throughout the entire contracting process,includin
44、g tracking andpreventing leakage off the improved agreements that have been established.2023 Boston Consulting Group8Address underlying issues.Just as high-performance applications require proper computinginfrastructure,high-performance cost reduction efforts require the right organizational infrast
45、ructure.Contracting policies should be improved,for example,to ensure that they do not create additionalcomplexity for vendors.Key utilization data should be accurately measured and easily available duringprocurement decisions;for example,through internal knowledge management systems that ensurethat
46、 IT and procurement organizations have access to the same consumption data.And vendorprofiles should be clearly understood,including their business models,margins,strategic aims,andsales team compensation plans and incentives.For example,when negotiating with cloud IaaS providers,which are more conc
47、erned about peak loadsthan total loads,government IT buyers can win overall discounts by locking in non-peak computingrates.Similarly,a government buyer that understands its vendors sales compensation structure mightbe able to achieve discounts by timing purchases to align with a vendors bonus accel
48、erator schedule.Once a more optimal organizational infrastructure is in place,CIOs can create savings more effectively.With improved contract management,for example,they can encourage the use of standard terms andconditions that reflect best practices and regularly assess contract performance to ens
49、ure that vendorsare meeting expected service levels.They can deploy accurate utilization data to reduce quantities orservice levels without harming the mission.And they can use their knowledge of vendor incentives toimprove the negotiation process.Have a plan to recoup and reinvest savings.Governmen
50、t CIOs need to understand their current ITcosts and where cost reductions will occur so that they can track program progress and ensure that theexpected reductions are delivered.The current cost baseline should therefore accurately reflect allspending controlled by the CIO and include estimated shad
51、ow IT spending to the extent possible.Without a clear baseline and tracking,the CIO will not be able to hold the agency accountable to itscost-reduction strategy.Agencies also need to understand and control where funding will go once cost reductions are achieved;that is,the budgets that will benefit
52、 from the effort.CIOs should therefore proactively define theirstrategy for recouping IT cost reductions and track the results.Otherwise,cost-reduction efforts mayunintentionally flow funds to lower-priority or unnecessary projects in a different area of theorganization,negating the cost reduction a
53、nd boosting inefficiencies elsewhere.Manage the ChangesAll these efforts to lay the groundwork for savings will be for nought if agency CIOs are unable to pushthrough on the toughest decisions,gain the support of internal stakeholders,and follow through tokeep the momentum going.Below are two exampl
54、es of actions that government leaders have taken toensure that their efforts create meaningful and lasting change.2023 Boston Consulting Group9Accept the need for tough decisions.When commercial organizations cut costs,they know thatreorganization and outsourcing(i.e.,headcount reduction)are always
55、options,even if they are not tobe undertaken lightly.Government CIOs need to have a similar level of intensity if they are to lock indeep,significant savings.They must be willing to accept the pain that comes from telling people“no”and pushing back on requirements.And they must be prepared to take t
56、he following steps whereappropriate:The opposition will be tough,as those affected will say the current investments are critical,theirmissions are unique,they need more functionality,and they wont budge on pricing,among otherarguments.Each of these responses should be evaluated on a case-by-case bas
57、is and not taken asautomatically exempting a program from cost containment.Frame the benefits to motivate internal stakeholders.Cutting costs can be a difficult pill toswallow in an organization not motivated by optimizing its profit and loss statement.To achieve buy-in,CIOs should present their eff
58、orts in a mission-centric way,such as by saying that they are using thefunds to reinvest in agency priorities.If members of the leadership are asking their internalstakeholders to sacrifice,they must communicate the longer-term benefits clearly.Once the changes are made,agencies must refrain from fa
59、lling back into habitual practices.Werecommend that CIOs keep four questions top of mind:Stop programs or cease investments.Force IT standardization(for example,of devices and soware).Limit features to those necessary.Negotiate hard with suppliers.Eliminate unneeded contract jobs.Reorganize long-hel
60、d roles and responsibilities.Centralize funding.How can we institutionalize new cost-saving practices and processes?What written policies and procedures should we update to support long-term savings?How can we track and show the impact our efforts have had?Who else should buy into the changes to ens
61、ure that they last?2023 Boston Consulting Group10With these answers in hand,agencies can work toward enduring cost management success.AuthorsAshwin BhaveMANAGING DIRECTOR&SENIOR PARTNERWashington,DCGreg BoisonMANAGING DIRECTOR&PARTNERWashington,DCMatthew SchlueterMANAGING DIRECTOR&PARTNER,GLOBAL LEA
62、DER,DEFENSE&SECURITYWashington,DCRyan OrdwayPARTNERWashington,DCNoelle HerringPROJECT LEADERWashington,DCMack AndrewsPROJECT LEADERWashington,DCVanessa HernandezCONSULTANTNew JerseyABOUT BOSTON CONSULTING GROUP 2023 Boston Consulting Group11Boston Consulting Group partners with leaders in business a
63、nd society to tackle their most importantchallenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it wasfounded in 1963.Today,we work closely with clients to embrace a transformational approach aimed atbenefiting all stakeholdersempowering organizations to gr
64、ow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives thatquestion the status quo and spark change.BCG delivers solutions through leading-edge managementconsulting,technology and
65、 design,and corporate and digital ventures.We work in a uniquely collaborativemodel across the firm and throughout all levels of the client organization,fueled by the goal of helping ourclients thrive and enabling them to make the world a better place.Boston Consulting Group 2023.All rights reserved.For information or permission to reprint,please contact BCG at .To find the latestBCG content and register to receive e-alerts on this topic or others,please visit .Follow BostonConsulting Group on Facebook and Twitter.