The flywheel effect: The winning formula for innovation

Securing funds for innovation can be a daunting responsibility, especially for mid-market companies. Findings from our latest global research whitepaper, “Driving Business Outcomes Through Cost-Optimised Innovation,” show that successful companies tap into hidden IT savings and create a perpetual funding cycle, which we call the “flywheel.”

Regardless of the size or type of business, the speed of innovation is always increasing and it’s essential to keep pace to stay competitive. For many mid-market companies, the path to innovation is fraught with high upfront costs. While the promise of cloud migration offers long-term benefits, the steep initial expenses often leave companies stuck in what we call the “messy middle” — being partially in the cloud but unable to fully capitalise on its potential. This financial burden stifles progress, and puts businesses at risk of falling behind.

Our global survey of companies revealed that many struggle to innovate, largely due to limited resources. However, the key to overcoming this barrier lies in adopting a flywheel approach—creating a continuous cycle of cost optimisation to generate funds for innovation.  In fact, our research shows that leading mid-market companies, which we call Optimised Innovators, achieve innovation success in this manner.  

Kickstarting the flywheel

The flywheel process starts with the fundamental practice of taking an inventory of the organisation’s entire IT asset estate to identify where costs can be reduced. This begins with licensing, followed by hardware, then labour costs (internal staff and external consultants).

IT expenses need to be right-sized to the current needs of the business. Licensing contracts change over time as do a company’s needs for on-premise hardware as more is migrated to the cloud. There may be duplicate expenses, including software licenses and contracts supporting multi-cloud environments. Once the IT environment is simplified, the need for labour is simplified, resulting in more cost savings.

IT optimisation unlocks savings to reinvest into the next generation of innovation. During each progressive cycle, modernised technology and processes create additional savings. This reliable process maximises the ROI of software and cloud spending while creating a self-sustaining model for growth. If done well, the flywheel effect enables a cost-neutral state for innovation, and ultimately, a fully optimised environment.

Optimised Innovators place a high or very high priority on cost optimisation—about 4X more than other companies. They also know that the goal of innovation is to drive value for the business: 78% of Optimised Innovators are taking a value-driven IT approach, prioritising IT investments that will bring the highest value to their businesses.

Your action plan for becoming a cost-optimised innovator

1. Unite behind a vision: Build a unified leadership vision and a culture of improvement

Starting from the high-level company strategy, collaborate with leaders across business lines to define broad innovation goals and priorities. Clarify the shared benefits of the innovation roadmap for internal stakeholders, customers, employees and shareholders, highlighting the role of cost optimisation in enabling these opportunities. Achieving the full backing of your cross-functional leadership team will clear obstacles and help lead a culture of continuous adaptation and innovation.

2. Know what you have: Discover opportunities to optimise

Having defined your innovation priorities, you can now begin to understand your IT landscape with an end-goal in mind. Analyse your software licenses, cloud environments and custom applications to identify areas for optimisation. Consider the following approaches: 

• Publisher analysis: Deep dive into your spending with key software vendors to optimise licensing, manage compliance and reduce costs. 
• FinOps analysis: Gain control of your cloud spend by aligning technology, finance and operations teams to enhance visibility and maximise the value of cloud investments. Many organisations have room to improve. According to Flexera, more than half of IT teams lack complete visibility into technology assets, putting the organisation at risk of increased costs, software audits and penalities. 
• Application portfolio Analysis: Assess your entire application landscape to reduce redundancy, identify modernisation targets and improve overall cost-effectiveness. 

3. Know where you’re going: Prioritise investments that maximise innovation returns

Identify high-value, unbudgeted technology opportunities that support your business goals. Optimising your IT portfolio will free-up resources to invest where it matters most, whether it be GenAI adoption, security solutions, operational automation, or accelerated cloud migration. Bringing these opportunities into reach will serve as a catalyst for your flywheel approach.

4. Develop the master plan: Define and document your rationalisation, and optimisation

Having a clear end-state in mind and a well-documented overview of your current landscape, formulate your detailed action plan with clear objectives and measurable KPIs. Consider the following: 

• While taking a long-term view, be sure your plan allows for incremental value to be added to the business. Studies have shown that most companies believe the time to value on their cloud journey is too long. 
• Understand the milestones of your vendor agreements. Plan for negotiating key events, such as contract renewals, price increases and end of support. 
• Invest strategically in application modernisation to reduce technical debt, lower software licensing costs and adopt future-ready technologies. Balance the cost-benefits of merely moving applications as opposed to modernising the applications to fully leverage the benefits the cloud has to offer. 

5. Press ahead with transformation: Drive business forward with new digital solutions

Execute your investment projects, focusing on initiatives that align with your strategic plan. Consider starting with internal projects for newer technologies like GenAI before moving to customer-facing use cases. Document the benefits to showcase the ROI of your optimisation efforts. Plan regular iterative reviews to assess the success of the program and ensure it is meeting the defined goals. Be sure to allow for changes in market conditions or technical advancements, as well as other unforeseen circumstances that will impact the overall timeline for your plan.

6. Maintain momentum: Make continuous optimisation and reinvestment “business as usual”

Optimisation is an ongoing process. Leverage IT asset management (ITAM) tools and best practaces to continuously identify new opportunities for savings and reinvestment. Maintain a dedicated ITAM function, supported by in-house expertise or an external partner, to ensure continuous optimisation across your software and cloud investments.