5 Ways to Optimize Application Sourcing Costs in an AI-Enabled Market
Application sourcing —software, support, labor and managed services — presents a prime opportunity to reduce spend and improve value realization.
Advisory
Cost Optimization Services
Achieve a competitive edge through sustainable cost transparency, cost reduction and cost agility across your technology and business operations.
AI-driven Cost Transformation
Traditional approaches to cost optimization are still good hygiene, but today remaining competitive requires AI-driven cost transformation. We address three levels of cost optimization, identifying quick-win and deep-potential opportunities and working toward both simultaneously. ISG helps our clients achieve fast, sustainable savings through AI-centered expert advisory, market data and insights, and execution support.
The final method is a cost transformation of your business' operating model for agility, resulting in cost transparency. Using zero-based budgeting to stay goal-aligned, AI to accelerate the business, and change management to empower your people, you can continuously optimize costs to stay competitive.
An intermediate method, cost substitution, involves operating model substitution usually through outsourcing, global capability centers, and/or AI and automation to drive sustainable cost resets.
Think of traditional cost trimming methods as pushing down on a balloon - often, this causes another area to bulge because it's not addressing the big picture. Cost trimming is transactional - good to achieve quick wins, but it should be implemented as part of a holistic cost optimization program.
Get Started Today
How to Get Started:
A Rapid Cost Assessment
We believe that you can't manage what you don't measure. The first step to achieving optimized costs is knowing where you are mis-aligned with the market and your goals.
Step 1:
We perform a rapid, holistic market assessment of your IT and business functions looking for opportunities in four areas by asking:
- Supplier Ecosystem: Can external spend be reduced?
- AI and Automation: Can technology provide a better solution?
- Processes & Controls: Do you have the right visibility, transparency, decision support and controls?
- Operating Model: Can your operating model be improved to deliver better outcomes at a reduced cost?
Step 2:
We build a transformation roadmap prioritizing your cost optimization opportunities, a business case with an operational expenditure (OpEx) view, and a future-state operating model design.
Step 3:
We execute the transformation plan to realize phased savings, leveraging strengths in organizational change management, operating model design, sourcing and market data/research.
- Cost Transformation Projects, incl. AI, Transformative Sourcing, GCCs, Apps
- Control Effectiveness Projects, incl. CoE, FinOps, Project Estimation, TBM
- Supplier Sourcing Projects, incl. Services, Labor, Network, Cloud
- Supplier Governance Projects, incl. Value Realization, VMO, Software Audit Defense, Telecom Audit
Project Estimation
and Controls
How do you know your project costs are reasonable and being controlled appropriately?
We simplify project cost and effort estimation, preventing scope creep with rigorous controls and governance, providing you with:
- Enhanced visibility into expenditures to allow for better budget management
- Optimized costs for each phase of the project by analyzing the work effort and staffing needed to complete the phase and benchmarking the market rates for that effort
- Continuous monitoring, which identifies cost-saving opportunities throughout the project
- Built-in risk identification and proactive risk management
Client Results from Cost Optimization
Saving shouldn’t compromise your growth. That's why ISG aligns cost optimization with your top-line business strategy, ensuring the program enables, and never hinders, your next move. We help you achieve sustainable savings that won't have cost bounce backs by integrating a cost optimization center of excellence into your company DNA. And our results speak for themselves:
$28M Saved
ISG assessment identified 20% in annual savings from near-term addressable spend for a North American automotive firm.
17% Saved
ISG identified accelerated transformation savings worth $7M to 16M in short term for a global manufacturer.
$33M Saved
ISG rationalized the portfolio of network providers for a North American FinTech firm by 40%.
$60M Saved
ISG achieved reductions through Project Estimation as a Service on a $460M portfolio for a North American energy firm.
$2M Saved
ISG assessed 100 processes and delivered $2.1M in automation savings in just six weeks for a financial services firm.
$4M Saved
ISG GovernX® enabled savings on renewals in just 2 weeks for a North American healthcare company.
Average Cost Savings After a Cost Optimization Exercise
Software and Cloud, Network and Telecom, Service Providers
20% TO 30% OF SPECIFIC EXTERNAL SPEND IN SAVINGS
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Contract Governance, Telecom Audit, Software Audit Defense
10% TO 35%* OF APPLICABLE EXTERNAL SPEND IN SAVINGS
*For software audits, we see savings <95% of applicable external spend
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Managed Services Sourcing, GCCs, Automation
20% TO 50% OF OVERALL COST AREAS
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Software Asset Management (SAM), FinOps, Technology Business Management (TBM), Project Estimation and Controls, or Application Rationalization
15% TO 30% OF SPECIFIC COST AREAS
The market has moved from ambition to accountability.
AI investment is accelerating, but results remain uneven. Only one in four initiatives is meeting revenue impact expectations, at an average spend of $1.3M per use case. Enterprises are no longer asking whether AI works. They are being asked to prove that it pays.
What We Deliver
AI strategy, governance and intelligence, built for execution.
Autonomous Enterprise
Operations built for autonomous execution, not retrofitted for it.
We help you identify where AI agents deliver the most value, restructure workflows around them and build the accountability models that keep autonomous execution auditable. The enterprises that win won't be the ones that reacted. They'll be the ones that designed for it first.
Autonomy-Level Pricing
Pricing that reflects how AI-enabled services are actually delivered.
We give enterprises transparent, benchmarkable pricing models that tag each resource unit with the autonomy level used to deliver it. As AI capability advances, your pricing keeps pace. Both buyers and providers can quantify what that progress is worth.
AI & Software Intelligence
Build-versus-buy decisions grounded in what AI is actually delivering.
We bring analysis of more than $2.6 billion in tracked AI spend to every sourcing decision. Procurement, technology and finance leaders get the independent intelligence to rationalize vendor portfolios and hold providers accountable to measurable outcomes.
AI Governance
Governance that accelerates AI adoption rather than constraining it.
We embed controls at the point of data creation, define accountability for autonomous actions and build adaptive frameworks that keep pace with AI without impeding it. Enterprises that get this right don't just manage risk. They build the trust that lets them scale faster.
AI Strategy
AI investment aligned to where impact is most achievable.
We ground strategy in research across 2,400 enterprise use cases, aligning investment to where impact is proven and designing the data, talent and governance foundations that move AI from pilots into the workflows that drive commercial results.
AI Maturity Index
A clear view of where you stand and a roadmap to where AI starts delivering.
We benchmark your AI readiness against peers across 75 countries, identify the dimensions holding you back and give you a personalized roadmap to close the gap.
The market today
Enterprise AI has moved out of IT and into the revenue line.
AI investment is shifting decisively toward revenue-generating functions. CRM automation, sales enablement and forecasting have replaced chatbots and IT productivity tools as the leading use case priorities, reflecting enterprise recognition that productivity gains alone do not satisfy board-level scrutiny. At the same time, use cases in production have doubled since 2024, and the portfolio is diversifying rapidly, with over 300 distinct function and industry-specific use cases now in active deployment.
ISG research across 2,400 enterprise use cases shows that the strongest AI returns are currently concentrated in compliance, risk management and quality control, not in the growth and cost outcomes most enterprises originally set out to achieve
The gap between where enterprises are investing and where AI is actually delivering is the defining commercial tension of 2025. Organizations that close it by targeting functions with structured, revenue-attributable data and clear ROI measures will establish performance benchmarks that compress the window for competitors still cycling through pilots. The standard is being set now.
Where enterprises are feeling the pressure
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Business outcomes are lagging AI ambitionEnterprises are scaling Al faster than they are realizing value from it. The number of use cases in production doubled between 2024 and 2025, yet only one in four initiatives is meeting revenue impact expectations, and broad cost savings remain elusive. At an average spend of $1.3M per use case, the ROI gap is sharpening board-level scrutiny and forcing a harder question: are we building Al for impact, or for activity?
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Data infrastructure exposing deferred investmentAl does fail in isolation. It fails on the foundations beneath it. Most enterprises are running modern Al on architectures built for reporting and compliance. Generative and agentic Al demand real-time contextually rich, governed data at the point of use. Without it, pilots stall and value dissipate before it reaches the business.
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The barrier to scale is organizational, not technicalOrganizational readiness as the bigger constraint on Al adoption, not talent or tooling. Workflows haven't been redesigned. Decision rights haven't shifted. Enterprises that treat Al as a pure technology deployment, without investing in the human side of adoption, consistently report underwhelming ROI.
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Agentic AI is outpacing governanceAs Al moves from generating outputs to executing tasks autonomously, the governance gap widens. Agentic Systems introduce a new class of risk that static compliance frameworks were never designed to catch. Governing what Al does, not just what it produces, is now a business-critical requirement.
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ISG is a leader in proprietary research, advisory consulting and executive event services focused on market trends and disruptive technologies.
Get the insight and guidance you need to accelerate growth and create more value.
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Frequently Asked Questions
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Q1. Why do so many cost optimization efforts fall short?
Cost optimization often fails because teams treat symptoms and act at the wrong time. Price cuts alone deliver short-lived savings that bounce back. The winners move at key inflection points, manage total cost (not just price), and lock in gains with live data, shared ownership, clear decision rules and governance at the moments that matter.
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Q2. Can procurement lead cost optimization?
Yes, but only in meaningful ways when it’s embedded with finance, operations and technology. Negotiation alone won’t control costs. Procurement should orchestrate demand forecasting, architecture and usage optimization, continuous monitoring and policy controls, so the pricing, discounts, commitments and flexibility in the contract match how you actually use the service and can scale up or down as usage changes.
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Q3. What’s the best way to start a cost optimization effort?
Begin with a rapid assessment to identify opportunities and quantify the size versus the effort. Then launch quick wins while shaping solutions for larger challenges. Conduct a total cost of ownership (TCO) benchmark and a review of financial processes and controls, operating model, technology use and external spend. The output should be a pragmatic, time-phased roadmap.
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Q4. How do you make cost optimization sustainable?
Build a “smarter” organization. This means breaking down silos, creating a single source of truth on costs and integrating functions around shared data and decision models. Pair this with strong organizational change management to embed new ways of working. Over time, momentum compounds into a cost-and-performance flywheel.
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Q5. What are the top moves to drive major cost optimization?
Benchmark your total costs for key processes. Stand up a cross-functional cost optimization center of excellence with the mandate to drive sustainable savings over the near term, mid-term and long term. Shift the mindset from price cutting to finding lower cost solutions with the benefits of transformation. Build governance to continuously review technology lifecycle decisions. Partner with tech-enabled providers and structure contracts to accelerate savings.
