IT Cost Cutting and Revenue Enhancing Projects

scissorsIn 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.

polar bearWhen 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:

Figure-1-Categorization-of-

Figure 1: Categorization of IT Projects 

Figure-2-Key-Benefits

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.

Maximizing BPM Benefit

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…

Are you really listening to your customers?

customer-serviceIf the pressure to obtain and implement Customer Relationship Management software is any indication, companies are recognizing the increasing importance of customer knowledge. Indeed, customer insights can lead companies to their best opportunities for growth far more accurately than that marketing presentation in the boardroom. The increasingly-reluctant-spending-customer needs to be better understood because company growth depends on it. The challenge is that customer interactions are not typically structured information that is easily analyzed to be acted upon, but are increasingly emails, phone conversations, web-based chat support and other unstructured information.

Outbound direct mail or telemarketing is simply not getting results for marketing departments. The focus needs to shift to creating a great customer experience on the inbound approach as an alternative. Doesn’t everyone enjoy doing business with a company that makes it easy to find and obtain what you are looking for? You don’t have to look far for proof of this idea. No longer able to differentiate on brand reputation, leading companies instead are focusing on customer experience—the all important feelings that customers develop about a company and its products or services across all touch points—as the key opportunity to break from their competition. Evidence of this new emphasis is found in the emergence of the “Chief Customer Officer (CCO)” role across the Fortune 1000 community. Companies such as United Airlines, Samsung and Chrysler have all recently announced chief customer officers as part of their executive suites.

The first challenge faced by these newly minted executives is customer experience management (CEM)—the practice of actively listening to customers, analyzing what they are saying to make better business decisions and measuring the impact of those decisions to drive organizational performance and loyalty. Enter a new technology to address all of the unstructured information that comes from customer interactions – text analytics. Text analytics is specialized software that annotates and restructures text into a form suitable for data mining. Text mining comes from data mining, a statistically rooted approach to classification, clustering, and derivation of association rules. Fortunately, there is much to be learned about how to handle unstructured data from two decades of struggling with similar problems in the structured data world. We now know as needs change and evolve, organizations will require the flexibility to integrate the most appropriate text processing technologies to extract desired information. They must enable users to apply time-tested analytical approaches that can be modified or expanded upon as understanding of issues and opportunities emerges from the data itself. For example, a call center should be able to apply a multi-dimensional analysis (i.e., “slice and dice”) to call center logs and email text for assessing trends, root causes, and relationships between issues, people, time to resolution, etc. Organizations should have the infrastructure, storage, and user interfaces to process and efficiently explore large volumes of data. And they need to easily leverage their existing BI and data warehousing (DW) tools presently used only for structured data analyses, to analyze unstructured data alongside structured data.

When text analytics are implemented against unstructured customer information, Customer Experience Management will drive significant, quantifiable benefits for the enterprise. In the most effective approaches to CEM, companies use text analytics to collect and analyze intelligence from all of the varied sources of feedback available inside and beyond the enterprise. They grow more intimate with their customers and more agilely adopt informed improvements. The focus is a real-time feedback loop that will result in a continual, systematic capability for measuring and improving customer experience.

The real magic always lives in the intersection of key technologies. Using text analytics for identifying the opportunities and trends from your customers then requires action – cross-selling or up-selling, generally implemented using automated workflows during the customer interaction. The faster and smoother the customer transaction occurs will help ensure “positive” feelings for the customer experience. A carefully architected solution implementation will drive this all important synergy for outstanding competitive results – and happy customers seeking out your company. The new mantra for marketing: Listen to your customers and make them happy.

Designed to Sell, Corporate Edition

When contemplating which business units or product lines to put up for sale in today’s challenging market, it might be wise to borrow some tactics from  the real estate market. It really comes down to three important guiding principles in planning a divestiture as part of your deleveraging strategy:

1. Know your market – cultivate target buyers to avoid a fire sale. Identify players looking for complementiarity in products, services or customer base.

2. Model the outcome on your going-forward financials – freeing up cash may be top of mind for everyone, but we all need to think past the current crisis and understand what the impact will be on sales and profitability going forward. If you don’t have a business intelligence toolset in place already, you may have difficulty in achieving the type of agile scenario modelling that is necessary here. Infoworld is reporting BI as a key spending area in the recession, specifically for determining profitability.

3. Know where to invest, or “design to sell.”basement – there may be secondary benefits, above and beyond a divestiture’s products, services, and customer base. Specifically in the technology architecture, especially if the business unit is on its own (instead of shared corporate) platforms. Ancient mainframe technology is like the walnut panelling and avocado shag carpeting lurking in the basement. Customized applications with their big in-house support teams are like the pink stucco patio and poolhouse a proud homeowner showcases, causing the buyer to race down the road to the next listing. Call in the design team, these could be good spots to begin a corporate makeover, as they are very likely to increase the value of the sale.

On the flip side, things like collaboration tools and  business process management suites are like the well-appointed master suites and media rooms that can help a buyer warm up to the sale. In addition to things like a lean operating architecture, these technologies help make a divestiture an attractive asset for buyers looking to build out a platform company.