Team With Business Management to Drive Out IT Cost

  • Written By: J. Dowling
  • Published On: July 25 2002



Team With Business Management to Drive Out IT Cost
J. Dowling - July 25, 2002

Introduction  

Does it cost more to run an IT Department that uses two relational database management systems than only one? How about three? How about a company that uses twenty-one different shop floor control systems or a state government that has more than thirty purchasing systems? Let's throw out the infinitesimal percentage of companies who do benefit from having multiple variants of the same information technology and admit that it will cost more to have more.

Note: This note first appeared in a column by James F. Dowling in Mid-Range Computing. Look for other previously published Mid-Range Computing columns by Mr. Dowling at this site or visit Midrange Showcase at www.midrangecomputing.com/showcase/.

Information Technology Aligned with Business  

Every business manager knows that duplication of work or resources increases operating costs. At the highest level of business operation, companies are buying each other in a frenzy to combine sales forces, share manufacturing capacity and in any way possible leverage infrastructure investments through higher utilization.

Then why is it that when the merger is approved, the CIO is asked how the two sales systems can be tied together? If shared infrastructure is the goal, the question should be "which of the two sales systems will the combined entity go with." "Well, umm err, you know that Charlie was CEO of a big operation and now he is only President of the widgetwhacker division. His products are really different from ours so we umm decided that we'll bring all of the products together through the new web site storefront and split them out on the back end."

"Oh, and by the way we also bought MegaShip. All of the orders will be shipped through their brand new, custom designed warehousing, picking and packing system. You know they just put that system in and we've got ten years of depreciation left to run before we can economically swap it out."

As the CEO rattles on about how the CIOs life is about to become even more complex than it already is, the CIO sees bullet after bullet on the quarterly financial review slide show containing the words IT, Cost, Time and Reduction.

How Does the CIO Manage This?  

For years, CIOs perfected the art of hiding IT costs. They no longer ran IT projects, they partnered with business managers to execute their business plans. They itemized, allocated and otherwise smeared IT spending over hundreds of accounts through decentralization and charge-back under the code name of project "Get Closer To The Customer." Even such programs that were well-intended frequently failed to deliver the desired outcome of higher performance business operations. At best, they shared accountability for cost of operations and at worst, they turned the hen house over to the fox. Some foxes were smart and others sold the chickens for a trip to the English Countryside where they learned to avoid bugles.

How can IT managers guide business management on the application of IT and wise investments? The answer is not too complicated but it is somewhat painful to execute.

First, IT, Business and Executive managers must commit themselves to a simple doctrine. The only reason for using IT is to enable business process improvement. If improvement goals are not crystal clear and quantified, there is no justification for an investment.

Second, All parties must agree to the Business Goals and how process improvements will achieve those goals. With these two elements in place, we have everyone in the same church, now lets get them each a copy of the same hymn book.

Third, Every IT project whether in execution or under consideration must be mapped to the processes that they enable and more importantly to the capabilities that they bring to the company.

Fourth, Life Cost of Ownership and Operation as well as the Business Value of each capability must be known, shared and used to drive investment decisions. Now the IT investment plan is linked to the business development plan. We all have the same hymn book.

Fifth, Every part of the company (HR, IT, Finance, Sales) must be able to explain what they are doing to deliver their part of each capability. We have unanimity on the song.

Sixth and finally, every executive and operating committee must review measures one through five at each meeting. We have harmony!

Now The Plan Is Executed  

Why is this so painful to execute? Because it is an engine that needs to have energy pumped into it continually. Everyone involved needs to be continually reminded of the goals and capabilities that they are working towards. All parties need to be watchful of diversions from the program. The Enterprise, Human Resources, Information Technology, Facilities Management and Financial Management are the principle benefactors but they are not the ones that control daily action.

Imagine if you can any business change that could get by all four of these groups for any length of time and then imagine how much easier it would be to respond with each of the four looking out for the others when they get involved in planning activities. With a good collaborative network, visibility of each other's plans and understanding of what will impact each other's functions, such a collaboration is very powerful. Don't kid yourself into thinking that all of the right people will be involved as early as they would like. That will not happen. Rather, what should be expected is that the one or two who do get involved will work to get the others into the program as early as practical, and when they do, the rest of the planning team will have already given their needs some consideration.

Examples of Maximizing Enterprise Value  

In practice such a program will limit the rate of complexity increase to the extent that enterprise value can be maximized. Enterprise value, being measured in terms of contribution to the bottom line now and in the future, therefore includes an agility factor. This is what leads IT Architects to focus solutions on adaptable platforms and virtual integration rather than on single systems. Let's look at two extremes.

One company is in the entertainment broadcast industry. Radio stations are bought and sold all of the time. Most stations are small but numbers of them are bundled into networks. When a network is bought, several of the stations are the real target and the rest of them are likely to be resold soon after purchase. Such a company must build an IT architecture that enables rapid integration and divestiture of businesses. Virtual Integration is also the case for banking where purchase, cherry-picking and divestiture happen rapidly.

Another company is growing through vertical integration. It starts off as a manufacturer then adds an internet sales division, then storefronts, then a manufacturer of a key set of components used in the core product. Operating in a market that yields low sales margins, this company must not just integrate the businesses, it must assimilate both operations and information systems to remain competitive. The IT architecture for this company would more likely map to an integrated suite of applications with broad functionality.

If the process described above is applied to these situations two very different IT management plans would also result. The broadcast company would have to focus on technology and technologists whereas the manufacturer would be better served focusing on business applications and business integrators. If either chooses the opposite management approach, increased IT complexity will result from having more people than necessary and having more technology to deal with.

Conclusion  

Small to midsize companies suffer the same pains as these larger ones. The only difference is that the integration versus assimilation issues lie between departments or divisions who are left to choose their own systems and suppliers. Ultimately, IT Management will be held accountable for the cost and value of IT systems whether or not they chose or implemented them. Take the leap and team up with the other enabling organizations in the company to choose the hymn book and point out the most appropriate hymns to match the current and future agenda.

Back to our conversation between the CIO and CEO - "Happy Thanksgiving. When you get in on Monday, let me tell you about the Christmas promotion? We want to have the ability to bring products from all of the sales order systems together into a single box with customer-selected gift wrap, a personalized letter and a single invoice."

This column will continue to explore the change/size paradox-big companies desiring speed and growing companies desiring stability. The author would appreciate feedback on material presented as well as suggestions for future study and reporting. The general theme is IT management and the goal is to make it easier to get clients what they want and what they need to succeed.

About The Author  

Jim Dowling is VP of the Alignment Consulting Practice at TechnologyEvaluation.Com, Inc. located in Woburn, Massachusetts. TEC researches IT products and suppliers as well as the ways companies obtain business value from IT. TEC's consulting services remove time, risk and ultimately cost from IT related decisions.

Jim can be reached at jdowling@TechnologyEvaluation.COM.

 
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