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In the current economic climate the CIOs and IT managers are constantly pushed to “do more with less”. However, blindly following this mantra can be a recipe for disaster. These days IT budgets are getting squeezed and there are fewer resources to go around however, literally trying to “do more with less” is the wrong approach. The “do more” approach implies that IT operations were not running efficiently and there was a lot of fat that could be trimmed — quite often that is simply not the case. It is not always possible to find a person or a piece of hardware that is sitting idle which can be cut from the budget without impacting something. However, in most IT departments there are still a lot of opportunities to save cost. But the “do more with less” mantra’s approach of actually trying to do more with less maybe flawed! Instead the right slogan should be something along the lines of “work smarter” or “smart utilization of shrinking resources”; not exactly catchy but conveys what is really needed.
When the times are tough IT departments tend to hunker down and act like hibernating bears – they reduce all activity (especially new projects) to a minimum and try to ride out the winter, not recognizing the opportunity that a recession brings. A more productive approach is to rethink your IT strategy, initiate new projects that enhance your competitive advantage, cut those that don’t, and reinvigorate the IT department in better alignment with the business needs and a more efficient cost structure. The economic climate and the renewed focus on cost reduction provides the much needed impetus to push new initiatives through that couldn’t be done before. Corporate strategy guru Richard Rumelt says,
“There are only two paths to substantially higher performance, one is through continued new inventions and the other requires exploiting changes in your environment.”
Inventing something substantial and new is not always easy or even possible but as the luck would have it the winds of change is blowing pretty hard these days both in technology and in the business environment. Cloud computing has emerged as a disruptive technology and is changing the way applications are built and deployed. Virtualization is changing the way IT departments buy hardware and build data centers. There is a renewed focus on enterprise wide information systems and emergence of new software and techniques have made business intelligence affordable and easy to deploy. These are all signs of major changes afoot in the IT industry. On the business side of the equation the current economic climate is reshaping the landscape and a new breed of winners and losers is sure to emerge. What is needed is a vision, strategy, and will to capitalize on these opportunities and turn them into competitive advantage. Recently a health care client of ours spent roughly $1 million on a BI and data strategy initiative and realized $5 million in savings in the first year due to increased operational efficiency.
Broadly speaking IT initiatives can be evaluated along two dimensions cost efficiency and competitive advantage. Cost efficiency defines a project’s ability to lower the cost structure and help you run operations more efficiently. Projects along the competitive advantage dimension provide greater insight into your business and/or market trends and help you gain an edge on the competition. Quite often projects along this dimension rely on an early mover’s advantage which overtime may turn into a “me too” as the competitors jump aboard the same bandwagon. The life of such a competitive advantage can be extended by superior execution but overtime it will fade – think supply-chain automation that gave Dell its competitive advantage in early years. Therefore such projects should be approached with a sense of urgency as each passing day erodes the potential for higher profits. In this framework each project can be considered to have a component of each dimension and can be plotted along these dimensions to help you prioritize projects that can turn recession into an opportunity for gaining competitive edge. Here are six initiatives that can help you break the IT hibernation, help you lower your cost structure, and gain an edge on the competition:
- Server virtualization
- Enterprise application & data audit
- Cloud computing
- Business Intelligence (BI)
- Business process automation
- Centralization & automation of IT operations
Figure 1: Categorization of IT Projects
In the current economic climate no project can go too far without an ROI justification and calculating ROI for an IT project especially something that does not directly produce revenue can be notoriously hard. While calculating ROI for these projects is beyond the scope of this article I hope to return to this issue soon with templates to help you get through the scrutiny of the CFO’s office. For now I will leave you with the thought that ROI can be thought of in terms three components:
- A value statement
- Hard ROI (direct ROI)
- Soft ROI (indirect ROI)
Each one is progressively harder to calculate and requires additional level of rigor and detail but improves the accuracy of calculation. I hope to discuss this subject in more detail in future blog entries.
Businesses that start implementing KPIs at a departmental level, without an enterprise wide effort to define a balanced set of key performance indicators, can unwittingly push their businesses into a no-win situation, as in these real-world scenarios:
- Customer Call Centers (often ahead of the curve as far as setting metrics) are tracking and incentivizing their call center agents to keep their call times short. Call center agents, in an effort to shave seconds off of each call, omit the crucial step of searching for a customer before entering a new one while logging interactions. Result: Duplicate customer records, which may even be pushed to other systems, creating pain throughout multiple departments.
- In the push to meet monthly sales quotas, hyper-discounting behavior becomes the norm among the sales team. If the pricebook is complex and no one can get a true read on profitability, inappropriate discounting may be approved when management doesn’t have access to the right information to make an informed approval decision.
- Some businesses steer only by financial performance measures, but these are lagging indicators, and can seldom, in and of themselves, provide the required agility to succeed in rapidly changing situations.
The key, of course, is to strive for balance when implementing KPIs:
- Balance between leading (forward-looking) and lagging (backward-looking) indicators.
- Balance across stakeholder perspectives. The Balanced Scorecard as a starting point works well to achieve balance across core stakeholder viewpoints of financial, customer, process, and learning/growth.
- Balance across levels in your business hierarchy. Kaplan and Norton expanded on the balanced scorecard approach to help businesses drive metrics down through their organizations via strategy maps.
- Balancing speed metrics with quality metrics
Image courtesy of memory-alpha.org
The alternative to a balanced approach at the outset is usually a technology desparation move, such as manually cobbling together some key reports, manually trying to scrub out duplicate data, implementing undesirable or even temporary customizations to packaged programs. There’s usually at least one person in the IT department who’s enough of a Star Trek fan to want to reprogram that no-win scenario, just like the young James Kirk did with the Kobayashi Maru.
When faced with the elusive question, “How do I maximize my long-term benefit?”, remember these two key principles:
- BPM should be a continuous learning cycle.
- New process improvement ideas can come from unexpected places.
As part of our recent research study on organizations across a dozen industries who have implemented a BPM solution in the past 3-5 years, the following quote from a Financial Services company representative highlights this point:
“You must know what BPM tools do best. Once you’ve catered your initial processes based on this core functionality, it is essential to then learn what else the tool can do for you. You must constantly be in a learning mode.”
With a BPM suite, by increasing its use, you increase its value. As users become more fluent in the concept of process management and broaden their understanding of the functionality and capabilities of the tool, they uncover more and more opportunities to increase productivity and quality in their daily activities.
Today’s BPM suites have so much functionality that you can actually create unnecessary risk if you try to do too much in the first few processes. Let the concepts sink in, let the team get used to it. Before you know it, they will be bringing new suggestions on what else to improve/tweak/change. Consider incentivizing the staff to generate new ideas.
Organizations that use their BPM for one or two processes can realize significant benefits and cost savings. But the organizations who have realized the most benefit from their BPM implementation have truly embraced the concept of continuous improvement using BPM to improve traceability, visibility, accuracy and speed of their processes.
These days, saving money and improving processes is everyone’s responsibility. Gone are the days of “I-just-work-here”. Everyone up and down the process chain will play a part in maximizing your organization’s benefit from BPM. Keep the communication feedback channels (and your ears) open…
Hard times are definitely here. By this time everybody in IT-land has done the obvious: frozen maintenance where possible, put off hardware and software upgrades, outsourced where possible, trimmed heads (contractors, consultants, staff), pushed BI/CPM/EPM analytics projects forward, and tuned up data and web resources.
Now is the time to think outside the bunker!
IT needs to consider what will need to be done to nurture the green shoots poking through the nuclear fallout. All of the talking heads and pundits see them ( glowing with radiation or whatever) and the utmost must be done to make sure they survive and grow or we shall all sink into the abyss!
This is the time to double down in IT (poker speak). It is not about heavily hyped Cloud Computing or the latest must-have tech gadget, but about something much more mundane and boring: improving the business process. There, I’ve said it, what could possibly be more boring? It doesn’t even plug-in. In fact (shudder!), it may be partially manual.
Business process is what gets the job done (feeding our paychecks!). Recessions are historically the perfect time to revise and streamline (supercharge ‘em!) existing business processes because it allows the company to accelerate ahead of the pack coming out of the recession. In addition, recession acts as something of a time-out for everybody (I only got beatings, no time-outs for me), like the yellow flag during a NASCAR race. When the yellow flag is out, time to hit the pits for gas and tires. Double down when it is slow to go faster when things speed up again, obviously the only thing to do.
How? is usually the question. The best first step is to have existing business processes documented and reviewed. Neither the staff involved driving the process at the moment nor the business analysts (internal or consultants) are that busy at the moment. That means any economic or dollar cost of doubling will be minimized under the economic yellow flag. The second step is to look for best practice, then glance ouside-the-box to maximize improvement. The third step is to look for supporting technology to supercharge the newly streamlined business process (I knew I could get some IT in there to justify my miserable existance!).
Small and medium businesses get the biggest bang for the buck (just picture trying to gas and change the tires on the Exxon Valdez at Daytona) with this strategy. This process allows SMBs to leapfrog the best practice and technology research the Global 2000 have done and cut to the chase without the pioneer’s cost (damn those arrows in the backside hurt!). Plus implementation is cheaper during recession ( I love to be on the buy-side). The hardware, software, and integration guys have to keep busy so they cut prices to the bone.
The way forward is clear, IT only needs to lead the way, following is kind of boring anyway.
