Do you have too much IT?
These are heady times for technophiles. New technologies like mobile computing, data analytics, social networking, and cloud computing has propelled IT back to the top of corporate agendas. However, in the rush to exploit new applications, many companies can easily over indulge in IT with negative repercussions on cost, ROI and organizational performance.
In today’s competitive economy, IT exuberance is understandable. Managers want to use breakthrough technologies to serve customers better, improve performance and ring out more cost savings from operations. At the same time, nobody wants to go through the carnage of the early 2000s when firms threw away $130B in IT spending between 2000-2002 (source: Morgan Stanley). Furthermore, CEOs can no longer ignore the high cost of IT in their search for bottom line savings. In some firms, the IT budget is now approaching 12-15% of total corporate spending.
Managers are faced with a dilemma: how do you take advantage of new technologies (if they are any good) without overspending and distracting the business? Based on our research and client experience, we recommend the following maxims:
1. IT must follow business strategy not the other way around – Typically, many managers look to get the latest applications, functionality and hardware before they understand how it would fit into the corporate strategy and workflows, or because they succumb to common phenomena like ‘feature creep’ or ‘keeping up with the Joneses.’ As a result, much of the IT purchased does not end up being deployed or effectively utilized. There are a variety of reasons for this, including: uneven management attention, insufficient employee training or poorly articulated requirements.
When strategy and goals dictates what resources are needed and when, less IT is inevitably purchased and more is utilized. To make this happen, firms should tweak their cultures in two ways. First, business sponsors should take the responsibility for better understanding existing IT assets and capabilities. They should jointly propose with IT technical solutions that align to business needs and corporate strategy. Second, the IT department must adopt an ‘inside-out’ approach to recommending technology. To do this, they must be congruent with business goals, strategy and plans before seeking out the ideal IT solution.
2. The organization is the focus – The role of IT is to support the organization, not the other way around. It is common for impatient managers to throw IT resources at what appears to be a business problem, when in fact it is the workflows, structure and policies that are the issue. Leaders need to first make sure the organization’s roles & responsibilities, decision rights and processes are optimized before considering new IT resources.
In addition, firms need to recognize that IT is an aid to judgment not a replacement for it. A case in point is data analytics. The potential of new DA technologies to better segment customers or identify operational improvements is hard to resist. However, managers need to tread carefully to ensure their organizations have the capabilities, skills and focus to fully leverage the power of DA or implement its insights.
3. IT simplicity should be the goal – Not surprisingly, the typical IT department is a mish mash of hardware, applications, operating systems, vendors and skills. This complexity breeds more complexity when managers start to add capabilities while continuing to support legacy systems. No wonder IT spending can quickly, quietly and unexpectedly spiral out of control.
Standardizing the computing platform across a company or business unit is one answer. Many companies like Cisco and Zara have gained significant productivity improvements and enterprise-wide IT savings by standardizing on a limited number of platforms, applications and vendors. In fact, firms can generate savings through scale economies and experience effects even when the individual asset is not the least expensive or the most capable.
Another way of getting more IT for less money is to move your computing into the cloud. While valid security and technical concerns remain, there are enough case studies and organizational best practices to justify moving many IT operations and applications, particularly non-core activities.
4. Re-exert transparency and control – Mismanaged IT spending is a pervasive problem in large organizations, particularly where there are weak controls and spend opacity. We’ve seen companies with strict headcount ceilings simultaneously give free rein to junior IT managers to purchase hardware, software licenses and consulting services at their leisure. A hospital we work with allows researchers to buy new hardware for every new project regardless of the presence of hundreds of under-utilized servers and licenses lying around. In our experience, rogue purchases can account for up to 25% of an IT budget.
To counter this, management needs to apply the same spending rules and discipline to IT as they do with other functional groups and expense categories. Furthermore, centralized purchase and finance departments should have more knowledge and visibility into existing IT assets and vendors in order to encourage the sharing of assets across business units and departments.
Many companies will flourish despite a minimalist approach to IT but to a large extent because of it. A ‘less is more’ IT strategy can lead to lower spending, reduced business complexity and higher employee engagement. Achieving this is as much about strategic alignment and organizational optimization as it is about technology selection and resourcing.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.