After the all too-familiar economic slump of late 2008 and 2009, the U.S. economy is showing signing of recovery. The third quarter of 2010 saw overall growth of 2% and consumer spending also grew by 2.6%. This is good news for the industries that will benefit from the increased consumer spending.
However, consumers and businesses remain quite cautious and both are demonstrating potentially permanent behavioral change -with an ever-present eye on seeking products and services offering value for the money. As consumers demand products that meet their needs at lower prices, the corresponding spending pattern offers opportunities for companies to use this trend as competitive differentiator to race ahead.
Traditionally low-margin industries reliant upon high inventory utilization, such as manufacturing, must respond to this new trend in innovative ways by delivering new products quickly and cost efficiently. Information Technology (IT) can play a significant role, both in achieving cost optimization and business agility.
At the same time, the lingering effects 2008 had on IT investments have passed but have also created a new era many characterize as "The New Normal." Doing more with less has become standard operating procedure for most companies and it is critical to address these requirements without compromising on costs and nimbleness of the organization. It makes sense to begin your annual planning and budgeting process by considering the following IT planning and budgeting "checklist" that will help identify relatively modest initiatives for reducing costs and improving efficiency. You may find that the benefits that flow from such a review free up resources to fund more ambitious, transformative initiatives that will have a significant positive effect on the business.
Discover Your IT
Before embarking on any journey, it is imperative to mark the starting point and take stock of both current assets and what is required to reach a desired destination. The first question that every CIO should be asking themselves is, "Do I know what all I have and where is my money going?" It may seem trivial, but our interactions with customers across industries show a definite lack of visibility in the CIO's enterprise. The IT leadership board of any organization requires clear visibility of applications and infrastructure being used by business, current and planned projects, technology directions and their continuous impact on IT landscape, as well as of its customers, suppliers and partners in the extended enterprise. Without this visibility, the IT department is essentially playing a game of chess blindfolded.
Many organizations have been accumulating software applications like loose change in a drawer. The new year is an optimal time to review all software applications and conduct a portfolio consolidation. This will remove the dust off the applications and revitalize them by either re-architecting or re-engineering as needed. Some of the applications may need to be decommissioned, which will free critical bandwidth spent on maintaining these duplicate or obsolete applications. The return on investment (ROI) of this type of exercise can be significant. As proof, we recently worked with a leading airline who was able to save 25% of its overall portfolio costs by optimizing its applications portfolio.
Some applications in the portfolio might be old and based on legacy systems such as mainframe. These applications have been growing in size as the business requirements change and have created a lot of "dead weight" in the process. Now is a good time to examine these applications and eliminate the dead code and libraries in order to increase the performance and reduce the CPU consumption and storage requirements. In a world where providers are paid by MIPS, each CPU cycle saved translates into real money that can be reallocated back to discretionary initiatives. A positive by-product is a leaner and faster mainframe application.
While many organizations have experimented with outsourcing IT services, they have yet to exploit its full potential. With significant savings at stake, outsourcing remains a compelling proposition and applications should be studied for maximizing the outsourcing potential. This may include breaking critical applications apart so that only absolutely necessary and critical parts remain in-house. This can lower the total cost of ownership (TCO) of the application. Those who have matured in their outsourcing strategy and are reaping the benefits, should move towards higher models such as managed services. This will enable consistent governance, increased accountability and improved productivity.
It is no longer sufficient to consider SLA-based pricing as managed services. Managed services can also be priced on a per unit basis, such as cents per transaction, and can include services such as printing and telecom expense management. In fact, managed print services have shown tremendous potential for bringing cost benefits. A leading manufacturer we worked with achieved 20% reduction in cost per employee of IT through integrated offshoring.
If we peel back the layers of IT, we may find further potential for improving efficiency and reducing waste in each layer. For example, what "trouble tickets" are being managed? Is there a more effective way to resolve them at first interaction, or better yet, how can the root cause be better addressed to reduce the volume of tickets being raised?
Similarly, it can be very valuable to examine the processes and identify inefficiencies accumulated over years or review an organizations applications usage to assess whether deploying cloud-based solutions makes sense. For example, a leading communications provider reduced the incidents by 60% and further reduced cycle time across incidents by 53% by standardizing and automating the support operations. Such detailed analysis requires an expert opinion from third party, as some of the recommendations are disruptive in nature and may cause incumbent vendor to lose some revenue in traditional engagement models. However, this is a necessary activity that should be implemented as soon as possible as it cleanses the system and provides for a leaner, healthier enterprise.
Current assessments of IT in general, and for manufacturing organizations, in particular, often identify significant challenges to be overcome in short term. This also represents a significant opportunity to streamline IT operations and prepare for next phase of growth. These checklist items should be seriously studied for incorporation in the annual IT budget planning and execution cycles. Depending on your organization and its state of transformation, these suggestions can offer incremental and long-term strategic benefits not only to IT, but to the entire business as well.
Dharmender Kapoor is head of Business and IT Transformation Services and Rupak Rathore is head of Collaborative Solutions, Business and IT Transformation Services for HCL Technologies. HCL Technologies is a global IT services provider.
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