At a lunch late last year, the CIO of a billion-dollar division of a Fortune 500 company vented his fury about his corporate CFO. “All the guy cares about is cutting costs,” he seethed. “He doesn’t really care how well the systems work; he doesn’t really care what it means to maintain or improve them; and he doesn’t care if spending a million more this year will save 10 million next year. He just wants to show what a hard-nosed, cost-cutting bastard he is.”
That’s not verbatim, but it accurately captures the substance and sentiment of this CIO’s bitter soliloquy. Yes, the global economy seems to be coming back. Yes, the IT spend has ticked upward. However, the post-bubble-bred tension between IT investment and IT spending is as fractious as ever. Finance may have switched from machetes to switchblades in its ongoing efforts to slash dollars and euros from global IT budgets, but its cost-containment culture appears unyielding.
CIOs have good reason to be irked by this reflexive financial fundamentalism. But they frequently (and understandably) lack the credibility to make the case that cost-cutting can be a counterproductive waste of time, effort and money.
Good news. Hard-won empirical evidence from several of the world’s largest companies indicates that cutting IT costs is one of the most expensive things an organization can do. Cutting costs is rarely cost-effective. CFOs who measure their impact by the IT budgets they sliced and diced are not doing their jobs.
Speaking at a recent CIO Summit, GM CTO Tony Scott disclosed that when the world’s largest auto company (and, not incidentally, one of the world’s largest enterprise consumers of IT products and services) reviewed the real impact of its IT cost-cutting initiatives, it discovered virtually no money had been saved. To the contrary, GM found that its traditional IT cost-cutting efforts provoked perverse consequences that proved painfully expensive. For example, IT had to put off a necessary upgrade of a mission-critical system for a year, even as clearly redundant systems were preserved.
So what works? GM learned that the healthiest ROI came from “systems reduction” rather than “cost reduction.” In other words, Scott says, you save more money by refocusing the business on cutting the number of IT systems instead of the volume of IT expenditures. The best way to prune IT budgets was to prune IT systems. According to Scott, system reduction savings proved more durable, sustainable and valuable than savings driven by the bean-counting budget slashers.
Indeed, responding to a disbelieving question from the moderator (me), Scott acknowledged that CFOs who set their sights on cutting IT budgets were doing their company a disservice. Cutting IT budgets without cutting IT systems left companies with the worst of both worlds: underfunded and underperforming IT systems along with unhappy users and unhappier IT departments.
The War Against Redundancy
Scott’s message: Treat systemic causes, not budgetary symptoms. Too much time, money and effort go into preserving a welter of quasi-localized, pseudo-centralized IT systems and apps that may be justifiable on an individual basis but, as part of a dysfunctional networked whole, are a colossal waste of resources. Want to dramatically boost IT productivity? Don’t cut 10 percent of the IT budget; cut 10 percent of the IT systems.
For example, according to Scott, GM didn’t really discover just how many SQL servers it had until it was struck (hard!) by the SQL Slammer worm and other digital infections. GM IT was overwhelmed with support calls. Needless to say, IT moved quickly to reduce redundant databases with all the associated licensing and gray market maintenance costs.
But that was merely the lowest hanging fruit. GM and other companies have discovered that they have six or seven—maybe even 10 or 12—overlapping databases in three or four rival departments that could (and should) be consolidated into no more than two or three large shared databases. This doesn’t merely reduce hard dollar IT costs; it provides a chance for operational and organizational efficiencies—layoffs, even. Any wonder why some executives prefer to pick on IT budgets?
By shifting the analysis from dollars spent to systems reduced, the entire productivity and cost-savings conversation is transformed. CIOs are required to evaluate the total cost of ownership of the system or app, while CFOs are forced to realize the false economies of systems starving. Killing and transitioning away from an existing system for 30, 60 or 90 days will cause expenditure spikes, but even the crudest spreadsheet calculations affirm that enterprises could easily save big money over 12 to 24 months.
Treating systems and apps—rather than budgets—as the medium to be managed puts the managerial focus where it truly belongs: on the business value of IT rather than its accounting cost. That’s smart.
Such an approach also begs an extraordinarily important implementation question. After the best candidates for reduction are identified and prioritized, IT’s challenge becomes the disimplementation of systems and apps. Surgical systems extraction (as painless as possible, please) becomes the CIO’s operational mandate. Or, for CIOs with more macabre predilections: How do you drive a stake through the heart of an app in a way that simultaneously kills it and its budget? Do you go for subtlety and stealth? Or are you better off with a high-profile execution? Verizon, a telecom provider all too rich in legacy systems but with an even greater reliance on IT than GM, opts for strategic systems strangulation. The company doesn’t ax its larger legacies; it asphyxiates them. First, corporate IT “surrounds” them with systems that ultimately are capable of replacing the legacy target; secondly (and this is the truly devious element), Verizon’s IT actually supplements the features and functionality of the legacy with some of the better bells and whistles of the new system now surrounding it.
In other words, Verizon uses the “supplement” phase to wean internal users off the legacy while simultaneously training them how to use the new system. In the final phase, the new system supplants the legacy to the point of effectively replacing it. Many users barely notice that a final swap-out has occurred.
Although undeniably time-intensive, Verizon—like GM—has found that the costs of temporary redundancy and transition are a better long-term deal than budget-cutting. You address root causes by pulling things out by their roots, not cutting off branches and trimming leaves.
There is no small irony in the larger truth that being a cost-conscious, value-creating CIO means paying just as much attention to which systems you take out as those you put in. The economics of disimplementation are as important to enterprise success as the cost-effectiveness of systems implementation. CIOs should insist that their CEOs and CFOs recognize that.
