IT strategy: Money pit

As the credit crunch has tightened an icy grip round the heart of business across much of the world, there has been much written about how companies should be battening down the hatches and cutting costs. In 2008, I ended this column with a call to companies to cut back on the staggering amount of money wasted on IT whose business value is uncertain.

When it comes to the complex world of enterprise IT, this is easier said than done. The key challenge is to first identify and then implement cost-cutting measures that will have minimal impact on the operational effectiveness of a business across the board. The FD, together with the chief executive and chief investment officer, must steer a perilous course between too much cost-cutting, which comes with the inherent risk of adversely impacting business competitiveness, and the other extreme of too little belt-tightening that could result in companies being financially outflanked by leaner rivals. For the vast majority, the optimum path is the middle way. But this is nigh on impossible to chart.

The first step is to look at existing IT and business processes to identify weaknesses and assess possible improvements. When money is tight, it is often the case that inefficiencies submerged in floods of money during the fat times can wash ashore as ugly problems when those funds run dry.

It may even be time to dust off business management strategy tools, such as Six Sigma, to help companies boost workflow efficiency. In these lean times it could also be appropriate to take a look at the Lean Production model espoused by Toyota. However, the caveat must be added that such methodologies can often be akin to using a sledgehammer to crack a walnut. It is vital to keep a perspective on the amount of work that would be necessary to achieve any savings: and there can be no substitute for common sense. These projects obviously cost, but it could be cash well spent if evaluation exercises are realistically scoped, tightly focused and disciplined from the outset.

Analyst group Quocirca advises that FDs seeking to pilot through the current recession need, as part of their overall strategy, to take a three-pronged approach to IT. The first element of this strategy should focus on rationalising systems ­ make them simpler. Most companies run multiple versions of the same application in different areas of the business and a quick win can be achieved simply by running the same version across those various units. Although this may not, at first glance, sound like a recipe for substantial cost savings, standardisation can have a major impact on management and maintenance overheads, delivering easy savings with negligible impact on core business effectiveness.

The second prong of Quocirca’s strategy follows logically in the form of consolidation of applications and systems. The type of questions to ask include, for example, how many Microsoft Exchange servers the company is running. Is it really necessary to maintain all of these as standalone systems that each enjoy individual management? There are many large enterprises running tens or even hundreds of copies of the same application, but all hosted on different servers. All of these applications need to be managed so consolidation can potentially deliver huge savings by slashing both management overheads and licensing costs.

The final line of attack for value-hungry FDs should centre on virtualisation. Virtualisation technology allows businesses to run multiple computing tasks discretely in “virtual” partitions on the same server, maximising hardware value. Many companies have the vast majority of their Intel or Windows servers running at 10% utilisation or less. This means that, in effect, more than 90% of the server’s capital value and running costs are wasted. Companies pay hugely over the odds to power, cool and house these servers that are not even working to anything like full capacity. From a business point of view, not to mention from an environmental one, this is patently absurd. Virtualisation allows these lazy servers to be put to work more effectively, giving businesses the chance to get much higher computing bang for the same amount of buck.

This tripartite approach emphasises the fact that the focus should be not just on IT cost-cutting, but on identifying the right costs to cut. Indeed, ill-considered, knee-jerk attempts to save money are often counter-productive and can lead to unwise companies actually saving themselves out of business.

Now, more than ever, technology must be seen as a key resource to help companies weather the economic storm ahead. Margins for error are reduced now and so it is ever more urgent to be able to rely on IT, not just to improve responsiveness and operational efficiency, but also to deliver timely and accurate business data on which key decisions can be made. Only when in possession of such data can FDs and other corporate leaders evaluate which operations are driving their businesses forward and, perhaps more importantly, pinpoint which ones are holding them back.

Gartner ­ correction
In last month’s IT Strategy column, a sentence written by Robert Jaques was misinterpreted in our editing process and changed to read that Gartner’s credit rating had been downgraded. This is incorrect. It was, in fact, Gartner’s forecasts for IT spending that had been downgraded. We apologise for the error.