5 Ways to Optimize Application Sourcing Costs in an AI-Enabled Market

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In today’s uncertain environment, many organizations are under pressure to optimize IT spend without compromising the digital capabilities that drive business value. Application sourcing —software, support, labor and managed services — presents a prime opportunity to reduce spend and improve value realization.

Most organizations have seen their application environments grow and become more complex over the last decade. These seemingly ever-expanding environments have become expensive to operate and manage. However, with AI-enabled delivery models and maturing SaaS and cloud economics, enterprises have a unique opportunity to reshape their sourcing strategies for greater cost efficiency and agility.

Key Drivers for Optimization

Enterprises most often look to optimize their applications so they can control rising annual costs and maximize the strategic value of their application investments. The most common drivers for application optimization initiatives include:

  • Portfolio complexity: Mergers and acquisitions, decentralized purchasing and cloud growth create redundant tools and underutilized capabilities.
  • Inefficient delivery models: A sub-optimal mix of employees, contractors and managed services partners drives inefficiency and higher costs.
  • Ineffective vendor management: Complex contracts and limited resources within vendor management teams result in increasing software spend and inflexible commercial models.
  • Labor market shifts: Global delivery talent pools are in flux, presenting new cost/quality trade-offs.
  • Underutilized licensing: Ineffective consumption and spend management results in license overpayments and shelfware.
  • AI adoption: AI tools can drive efficiency within an organization but can also lead to increasing software spend and require implementation effort to realize automation opportunities.
  • Business demand for faster change: Sourcing strategies must support agility as digital business priorities accelerate.

5 Actions to Optimize Sourcing Costs

To address these challenges and capture savings and value, organizations should take an integrated set of actions across five dimensions:

1. Application Portfolio Rationalization

2. Optimizing Labor and Managed Services Mix

3. Contract Optimization and Vendor Management

4. Cloud and SaaS Spend Management

5. Embedding Governance and Continuous Optimization

What To Do Now to Take Advantage of Market Conditions

The current market is especially favorable for driving cost optimization:

Application sourcing optimization is one of today’s most actionable levers for IT cost and performance improvement. But fragmented approaches won’t capture full value. Organizations need an integrated approach across applications, labor, contracts and delivery models — supported by strong governance.

Those who act now, with the right advisory and execution support, can achieve 30%+ sustainable savings, increase agility and position themselves to take full advantage of emerging AI-enabled operating models.

Capturing this value requires expertise and market intelligence. ISG help enterprises optimize their application sourcing. We have the world’s largest sourcing benchmarking database to help find right-fit partners and put in place governance that keeps those relationships healthy and safe. We understand the application services market trends and help companies design AI Ops and automation strategies that serve their specific business needs.

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About the author

Chris Karalis

Chris Karalis

Chris is responsible for leading various activities in project delivery, including data analysis, financial modeling, data collection and validation, quality assurance, report writing, and project management. He primarily works in the Data and Analytics space, performing IT Performance Benchmarks and Market Price Assessments, and has also supported Strategy, Transaction, and Business Process Outsourcing projects.