november ag IT Cost Reduction What we learned from a good fairy Summer, 2009 To cope with the tightrope walk of IT cost reduction some magic would be great – wouldn’t it? Once upon a time there was a CIO. His name was Charles Lever, a reliable and good man. One night a good fairy turned up and spoke to him: “Dear Charles, as I have experienced you as a good man and very gifted CIO I would like to reward you. I trust an entire and very well organized IT department to your care; it will be of high benefit for the company and all stakeholders will be very pleased. You can let it grow but watch out that it doesn’t get too big. When you cut some parts it will grow again, just be careful not to destroy the roots and main branches. Cherish it well and you will be royally rewarded“ … Time passed, the economic climate grew tougher and a new CEO, Mr. Chuck Risis came on board. Charles Lever was forced as everybody else to reduce IT costs drastically. In a grey and cold november night the good fairy got back to Charles and asked: “How is your IT department doing?” “I save and cut” the CIO answered “but I do not know how far I can go and this gives me quiet some headache.” “How shall I cope when the economy swings upward again and IT needs to be ready supporting growth on short notice?” “I am glad to hear that your thoughts consider such aspects even in a recession period” the good fairy replied. “Growth is not only dependent on the seed but also on the conditions, such as a projectfriendly environment, the right people in the right role and a sustainable long-term approach”. “Are you focusing and investing enough into these topics?” The good fairy left a slide deck behind which the CIO presented at the next day’s management meeting… page 2 - 27.07.2009 - Cost Reduction in IT Organizations november ag Increased demand to reduce costs Internal & external circumstances force IT organizations to act very fast The current economic climate forces many companies to reduce their overall cost base. IT is in many cases in a central focus. Today, IT organizations must cope with a cost reduction momentum that is driven internally and externally. EXTERNAL • Downturn in economy • Credit crunch • Shrinking Stock Exchange • Cost savings everywhere • Head cuts in other companies INTERNAL • Increased sensitivity on costs • E-Business headaches • Budget cuts/freeze • Slowed sales • Dropping revenues • Changed business priority (e.g. IT is not priority anymore) Demand to reduce IT related costs november ag applies a comprehensive approach to minimize potential negative side effects! page 3 - 27.07.2009 - Cost Reduction in IT Organizations november ag Analysis of the situation What is the key driver behind the cost reduction objectives? Costs are fair but there is an enterprise wide issue with costs Costs are too high and do not correlate with the delivered services Costs are too high Revenues reduced Priorities changed Benchmarking shows cast saving potential Cost development is not in line with services development Business requirements and IT services not aligned Strategic change of business Cost issue is temporary Systematic cost issue Efficiency IT has reduced value Effectiveness page 4 - 27.07.2009 - Cost Reduction in IT Organizations november ag Approaches to reduce costs Consider the associated time frames, risks and impacts Approach Cost Cutting Drivers IT costs must be quickly reduced Service reduction is considered too Risk management is crucial Characteristics Timeframe Risk Investment Impact Timeframe Risk Investment Impact Timeframe Risk Investment Impact Timeframe Risk Investment Impact 2 – 3 Months significant None required Short time, not lasting 2 – 3 Months moderate None required Short time, not lasting 6 – 24 Months low Required Focused and lasting 9 – 30 Months low Significant unsure Cost Freeze IT costs must not increase any further Cost Optimization Strategic IT Cost Management page 5 IT costs are being reduced by changing the environment, processes or architectures. Significant investment is required. With changes in either philosophy, cost structure, governance, sourcing application portfolio or all of them, the IT costs and its development are being addressed in a fundamental way. - 27.07.2009 - Cost Reduction in IT Organizations november ag Cost Reduction Short, Mid, Long-Term Be aware that Cost cutting is fast but risky whilst Cost optimization is an investment on the longer term! Costs Trend for IT Costs Aligned IT-Cost Development Minimum costs level to support a reliable environment for the business Time Short-Term State the message ...by fast, visible and noticeable impact Immediate non persisting cost reductions page 6 Mid-Term Optimizing of resources ...by direction and control of the projects, staff, suppliers, etc. Sustainable cost reduction potential Long-Term Strategic allocation of resources ... by alignment of IT with business needs with respect to objectives, governance, accountability, etc. Aligned IT-costs - 27.07.2009 - Cost Reduction in IT Organizations november ag Major Cost Drivers Scour for all potentials to influence costs in the Short Term or Long-Term Priorities (incl. project portfolio) Transparency of costs Level of control Awareness of Business Governance/ Accountability Service Levels Project Management Demand for security, quality, compliance Disaster Recovery Lifecycle Management Technical vs. functional quality Modularity Centralization Systems Strategy Delivery People Technology Training (User) Fluctuation VIP Sabbaticals Temporary salary reductions Skills (IT) page 7 Network Standards (HW, SW, OS, Apps) Licenses Legacy Systems Proprietary vs. Open - 27.07.2009 - Cost Reduction in IT Organizations november ag Focus Areas To be selected with respect to time frames and risks Short to Mid-Term Decentralized Systems - Long-Term Systems & Architecture - multiplier effect divergence network reporting (work done, status, complaints, etc.) reliability (deadlines, commitments) co-ordination, communication 80/20 rule number of external staff services provided satisfaction - 27.07.2009 - Cost Reduction in IT Organizations Behavior Patterns legacy systems modularity thin client architecture standard software governance, accountability (persons vs. boards) project management culture Internal / external outsourcing / insourcing core competencies and skills Culture Sourcing External Suppliers page 8 november ag Some Short to Mid-Term Actions Strategy Get the picture on current and planned cost Increase control (internal & external) Challenge service levels (is the gold level needed?) Prioritize projects with a fast ROI; stop/defer others Analyze /adjust bandwidth to needs Abolish roaming; increase percentage of laptops Analyze licenses vs. usage and adjust Limit the use of BlackBerries and other gadgets Reduce number of external employees Analyze helpdesk reports, train users Clarify and communicate VIP status Skip a migration step Shut down systems hardly used - 27.07.2009 - Cost Reduction in IT Organizations State the message Act fast Secure operations Set-up mid- to long-term actions Free up money to fund mid- to longterm actions Systems People Technol. Delivery page 9 november ag Key Success Factors Work order by senior management Regular involvement of the sponsor Fast and lean approach with defined milestones Definition of acceptance criteria and Early clarification of ... objectives & targets - Cutting, Freezing, Optimizing? How much shall be reduced? Time frames? ... scope - Which parts of the IT Organization are in focus, which are not to be touched? ... communication - Open discussion in (& outside) the organization? Who to involve? Who are the stakeholders (promoters and blockers)? ... degrees of freedom - Is a reduction of staff an option? Which long-term obligation can not be changed? november ag has long-time experience in IT Cost Management and offers value based services for IT Cost Reduction. We are happy to further explain our approach to you. page 10 - 27.07.2009 - Cost Reduction in IT Organizations november ag november ag We support you in the essential things. november ag Garnmarkt 1 P.O. Box 2160 8401 Winterthur Switzerland november ag St. Alban-Vorstadt 108 4052 Basel Switzerland www.november-ag.ch Your contact: info@november-ag.ch Christoph Emmenegger +41 79 251 95 93