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IT Economics

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IT Economics
REPORT
ISSUE 01:
How Do Leading CIOs Measure Their Spend?
IT is one of the largest indirect costs in nearly any business. Because those costs are not directly attributable to the business’ external product offerings, it’s hard to know whether IT is receiving appropriate value from its investment. So how do IT leaders know they’re spending wisely?

At Apptio, we’re pioneering new ways of helping IT leaders answer this question with fact-based analysis of their actual IT costs. This is the first in a series of quarterly reports where we explore the aggregate spend patterns of our customers and uncover new insights to inform the decisions of technology business leaders.
Apptio’s Unique Vantage Point
Every month, our customers use Apptio Cost Transparency to automate IT cost analytics. Together, we're accumulating a wealth of IT spend knowledge that’s grounded in truth because it’s based on the actual cost data that CIOs use to run their business.
The New Era in IT Spend Metrics
IT leaders and technology suppliers traditionally measure IT efficiency and make product strategy decisions using IT spend metrics sourced from consultants and benchmark firms. With this report, Apptio introduces a new data-driven approach that aggregates actual IT costs from across our customers, yielding a fresh, accurate perspective on industry trends.
  • Actual costs from general ledger
  • Automated analytics
  • Calculated monthly
  • Standardized & repeatable
  • Enables actionable decisions
Aligning to a Standard Cost Model
In order to analyze our customers’ aggregate spend data for patterns, costs must be calculated consistently. Apptio customers benefit from a pre-defined cost model and taxonomy that provides standard terms and categories for common IT functions. With costs routed through this taxonomy, organizations know they’re following best practices and can compare their costs to their peers.
Learn more about the Apptio TBM Unified Model™ (ATUM™)
Establishing a Baseline
By analyzing actual spend data from a sampling of our customers, we calculated the average percentage of IT spend directed through each Cost Pool and IT Resource Tower. Note that these are not based on estimates or survey data, but on actual costs, calculated monthly for these customers by Apptio.
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Cost Pool
Resource Tower
When viewing costs through the lens of standard cost pools, it’s no surprise that nearly 50% of typical IT spend goes toward people-related costs. Second to that is spending on technology, complemented by services from outside providers.
Average % of IT Spend by Cost Pool
Profiling the Outliers
Every organization is different, and IT leaders tailor their IT supply chain to the unique needs of their business. In our analysis, we identified 3 groups of companies that deviate from the typical pattern and reflect alternate approaches to sourcing their IT supply chain.
Does one of these “archetypes” align with your strategy?
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Vendor-centric
People-centric
In this category, we found two “sub-archetypes” of companies that favor spending on either
hardware or software.
Key Takeaways
Modern IT leaders manage their IT business with detailed financial views for supply, demand and consumption.
Standardization enables a new approach to IT industry spend analytics based on actual costs.
IT leaders can use standard IT cost analytics to frequently compare their actual costs to peers and industry averages.
IT leaders should seek out IT cost analytics solutions that provide granular analytics of the entire IT supply chain.
IT leaders should adopt a standardized, automated, best practice approach to IT cost analytics.
IT leaders should incorporate actual costs into their benchmarking and peer comparison efforts.
Leading CIOs Use Apptio to Manage the Business of IT
Every IT leader should manage their technology business using the IT cost analytics outlined in this report, but most struggle to do so, because they’re trapped in a bygone era of spreadsheet-based manual reporting. If this is you, take heart! Hundreds of companies use Apptio to automate these analytics every month.
With Apptio, IT Leaders:
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Contact us to join the movement
Topics for Future Reports
This is just a taste of what's possible by analyzing the rich repository of IT spend data that Apptio customers calculate on a monthly basis. We look forward to providing visibility into new facets of IT spend patterns. In future quarters, we plan to explore new spending insights such as:
How are leading organizations optimizing run costs in order to fund innovation?
How effective is each archetype in terms of IT efficiency, revenue growth and other factors?
How do organizations differ on vendor spend? Which vendors are rising & falling?
How do patterns shift over time? Do they exhibit seasonality or react to world events?
How do cost pool allocations vary by archetype, revenue size or other factors?
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