How to use EA to Manage Costs More Strategically

Transcription

1 How to use EA to Manage Costs More Strategically Bruce Robertson Research VP 10 June 2009 Audio Announcement You have joined the audio muted using your computer s speaker system (VoIP) by default. To call in, please select use telephone in your audio pane of the Webinar panel for the conference number and access code Notes accompany this presentation. Please select Notes Page view. These materials can be reproduced only with written approval from Gartner. Such approvals must be requested via vendor.relations@gartner.com. Gartner is a registered trademark of Gartner, Inc. or its affiliates.

2 How to Participate Today Audio Announcement You have joined the audio muted using your computer s speaker system (VoIP) by default. To call in, please select use telephone in your audio pane of the Webinar panel for the conference number and access code

3 CUT! Common Directive: Cut IT Costs 20%" 2008 IT Spend Categories Outsourcing Other 8% 18% 18% 19% 36% Hardware Software Personnel Must you reduce EACH area by 20% exactly? Can you cut one more than another? Is IT being forced to cut in proportion to the rest of the business? Is the IT spend as a % of revenue or operational expense changing? What exactly IS the new business revenue expectation? Hardware Software Personnel Outsourcing Other from "IT Spending and Staffing Report, 2009 (27 January 2009, ID: G )

4 Key Issues 1. Cut IT Costs in Projects 2. Cut IT Costs in Asset or Solution Portfolios 3. Improve Business Cost Cutting 4. Don't Forget Innovation While Cost Cutting 5. What EA Programs Must Do NOW Cut, optimize, manage whatever term fits!

5 IT Cost-Cutting Recommendations Establish your cost-cutting team now - Assign top performers to lead IT cost-cutting programs, and remove all other duties from their day-to-day tasks for the duration of the cost-cutting assignment. - Calculate any year-end financial bonuses based exclusively on the amount of money the team saves in Enlist an Internal Auditor as Scorekeeper. - Identify a liaison from the Legal Department. - Report results on a weekly basis. Information to track - A description and explanation of the savings target. - The steps to be taken to achieve the savings. - The one-time cost to implement the recommended actions. - The range of potential net savings in The annualized savings in future years from recommended actions. From "Cost Cutting in IT" (6 February 2008, ID: G )

6 Define YOUR Cost Management Scenario We are in survival mode - The ONLY business strategy is cost cutting EVERYWHERE - No one wants to hear about 3-5 year plans - Aggressive cost reductions are required - All non-essential projects are stopped no new spend to save either We are in a contracting market - Cost optimization is an important business strategy - Both tactical and strategic approaches are appropriate - Smart spending, appropriate cutting can spend to save - Innovation opportunities are ripe We are doing quite well, thank you! - Cost optimization less important than other business strategies - Some companies/industries will grow in a declining market - Some markets are still growing geographically focus there - Investments must be carefully aligned to strategy (cut here, grow there) - Growth opportunities abound (e.g., business acquisition)

7 Participant Poll Question 1: What cost optimization scenario fits your situation? Surviving Contracting No problem, things are fine Not sure Please select the one option that best fits your situation Responses are confidential

8 Use EA to Link Projects to Business Strategy Align all EA models to business requirements via business strategies and their EA change requirements (by EA viewpoint) Identify areas the business agrees are going to support the most CHANGE in the future focus on these opportunities Prioritize projects that support the business strategies There are other benefits besides lower costs This includes a business strategy of cost reduction or optimization Example: Projects to CRV Content Projects Project 1 Project 2 Project 3 Project 4 IT Project 1 IT Project 2 IT Project 3 Recheck ALL projects against changed business strategy; cost cutting still may not be the only goal EBS 1 EBS 2 EBS 3 ITR 3 ITR 4 Notes: EBS = Enterprise Business Strategy, ITR = Information Technology Requirement, CRV = Common Requirements Vision ITR 6

9 To Save Money, Use EA to Kill Projects The most immediate cost saving is to stop projects that are spending money. Or delay them. Or slow them. Leverage Gartner's common requirements vision (CRV) approach to define trends and business strategies, then map EA change requirements to those that can generate results. Case example: - Retail company mapped projects to business strategies from CRV - Some had strong linkages (to more than one strategy) - Some had no linkage at all - The ERP upgrade could be put off - So they did delay it indefinitely (>3 years now) - Savings? Spend plan > $2M Money not spent is money saved From "EA and Cost Optimization, Part 1: Cutting IT Costs" (10 March 2009, ID: G )

10 Participant Poll Question 2: Have you ever gotten a project killed using EA information? Yes, we manage this well Yes, but only lately No, but we re trying to now No, never have Please select the one option that best fits your situation Responses are confidential

11 Basic EA Solution Portfolio Optimizations Eliminate UNUSED and USE existing more - Good: app/infra is usually extra cost (e.g., IT asset management for software licenses can cut 10% or more; similar for hardware support contracts) - Bad: contracts including leases may require adjustment Eliminate OVERLAPs and SHARE more - Good: duplicate app/infra is often unneeded extra cost - Bad: getting rid of duplicates (consolidation, unification, simplification) can be costly and time-consuming Leverage TECHNOLOGY and REPEAT more - Good: cut costs by using resources more efficiently and effectively (e.g., go green, cheaper/faster servers) - Bad: can cost real new investment (consolidation again) and may have significant lag time before ROI

12 Radical Cost Reduction: "Yes, We Can" Driver: 2000 downturn in telecommunications industry telecom equipment providers were forced to radically resize to adjust to changing market conditions. Challenge: Cut IT budget 50% in two years. Results: This business slowdown was turned into an advantage for the IT organization, by providing the stimulus for some difficult and daring change programs, including - Centralization: Eliminated all regional IT spending, gained control of IT expenses. - Outsourcing: From 4,000 IT staff members to just 150 FTEs in headquarters. - Application Portfolio Rationalization: From 3,000 to 1,500 in two years. From 35 unique SAP implementations to two; estimated savings: 10 million euros annually. - Infrastructure Rationalization: 278 sites and data centers reduced by 75%. Portal consolidation: From 2,000 Web sites to 40 hubs; 650 servers eliminated. Reduction of ERP staff in shared-service centers from 2,400 to 1,200 in two years. - Innovation: Added reverse auctioning to e-sourcing, reducing costs by 25%. - Business Cost Optimization: E-procurement initiative using SAP SRM helped optimize the procurement process; over 10 million euros saved annually. From "Toolkit: Enterprise Architecture Succeeds at Global Telecommunications Company (Case Study)" (13 December 2006, ID: G )

13 Make Sure Business Cost Cutting Leads to Related IT Cost Reduction Business Cuts Staff Reduction Product Elimination General focus areas: Procurement: IT equipment and services Negotiation: IT contracts Run rate: Keep IT operating costs low Elimination: Retire IT equipment and services from the enterprise IT Cuts Cell phone contracts Desktop leases Software licenses Help desk staff System retirement Server leases Software licenses AD staff From "EA and Cost Optimization, Part 2: Cutting Costs Beyond IT" (7 April 2009, ID: G )

14 Business Cost Cutting Leads to Reduced IT Requirements "Are telecommunications services in line with current requirements?" Recent consolidations and facility closings can significantly reduce an enterprise's telecommunications requirements. A good example of the lack of follow-through occurs when the telephone systems are removed from a facility, but the telephone service connections remain in place. Ensuring that telecommunications contracts are modified to reflect service reductions is overlooked. Cost savings associated with tighter management of telco services represent a wide range of opportunities, but if your organization has been lax in managing this cost area, look for a potential saving of at least 5% on total telecommunications costs following an initial audit. One-Time Cost to Implement: $20,000 initially or, if the audit is outsourced, 25% of the first-year savings. Net Savings in 2008: Initial reduction of 5% to 10% of total telecom costs. Annualized Net Savings in Future Years: Annual savings of 5% of total telecom expenditures. From "Don't Overlook Opportunities to Save Costs on ITAM" (27 March 2008, ID: G )

15 EA Must Also Focus on BUSINESS Cost Savings from "IT Spending and Staffing Report, 2009" (27 January 2009, ID: G ) Average IT Spend in 2008 = 4.1% Revenue Average IT Spend in 2008 = $13,119 per Employee Average IT Spend in 2008 = 5.9% Operating Expense What about the other 94.1% of the expenses? How are these being cut or optimized? And by whom?

16 Business Cost Savings Business process harmonization, consolidation - Implement single processes for common functions Business process streamlining - Integrate processes spanning multiple business units Business intelligence - Identify low-return activities - Identify high-value customers Business Process Outsourcing - Outsource inefficient functions Many initiatives that would have been politically incorrect in the past become business imperatives in a downturn

17 Example: Utilities Business Cost Savings "While cost savings in IT are achievable, the bigger savings will be in how IT improves operations." Cost savings: Better use of enterprise asset management (EAM) will manifest itself in these areas: labor, inventory, equipment availability, warranty recovery. Cumulatively, ranges of improvements in functions and processes related to ITbased efficiencies were: - Labor utilization improved by 10% to 20% (that is, labor hours were reduced for the same level of work). - Inventory was reduced by 20% to 30% with the same service level for issues. - Inventory carrying costs (from storage, insurance, handling and so on) were reduced by 20%. - New equipment purchases decreased by 3% to 5%. - Available fleet increased by 3% to 5%. - Warranty recovery (by tracking jobs) improved by 10% to 50%. - Material cost (by minimized waste and rework) improved by 5% to 10%. - Reduced purchasing costs (time to make an order) improved by 10% to 50%. From "Cost Cutting in Utilities Can Come From Better Asset Management" (2 April 2008, ID: G )

18 Example Innovative EA OVERLAP Analysis: Identifying SHARED Application Services Top-down - Define where change, agility are critical - Define where reuse, sharing, efficiency are critical - Analyze overlaps, redundancy Bottom-up - Be on the lookout for what others (not EA) are doing - Collect and remarket those that are more promising or successful Middle-out - Determine key interfaces, and identifiers, formats and protocols (IFaPs) Be open to any good ideas! Analyze overlaps, redundancy F A H G 18 C 13 D B E I Good service candidates? Example Portfolios Number = process (EBA) Letter = application (ESA)

19 Participant Poll Question 3: What PRIMARY cost optimization focus do you have? Cut IT Costs in Projects (including killing projects) Cut IT Costs in Asset or Solution Portfolios IT Innovation While Cost Cutting Integrate Business and IT Cost Cutting Facilitate Business Innovation, Restructuring & Process Improvement Please select the one option that best fits your situation Responses are confidential

20 Participant Poll Question 4: What SECONDARY cost optimization focus do you have? (do NOT pick the same as Q3) Cut IT Costs in Projects (including killing projects) Cut IT Costs in Asset or Solution Portfolios IT Innovation While Cost Cutting Integrate Business and IT Cost Cutting Facilitate Business Innovation, Restructuring & Process Improvement Please select the one option that best fits your situation Responses are confidential

21 IT Spend: Allocation by EA Maturity Level 100% 80% 60% 21% 21% 28% 31% 27% 33% Transform Grow 40% 20% 51% 48% 40% Run Source: Gartner EA Survey, July 2007, n = 114 0% Group 1 Group 2 Group 3 Change Happens (no EA) Change Process (some EA) Change Managed (strong EA) Your current EA maturity will limit what you can accomplish in cost cutting

22 Participant Poll Question 5: What is your EA Maturity? High Medium Low Very Low Please select the one option that best fits your situation Responses are confidential Gartner clients can find an EA Maturity Assessment in the EA role IT Leaders Toolkit

23 What EA Programs MUST Do NOW! EA Maturity EA Role in Cost Optimization Key EA Activities HIGH Lead Identify innovation opportunities MEDIUM Optimize business processes Participate Kill projects Conduct Application Portfolio Management LOW Know Provide "Bronze" choices VERY LOW Oblivious Conduct Infrastructure Portfolio Management Still planning current projects Where are you? What CAN you realistically do? Waiting to hear of changed priorities From "EA and Cost Optimization, Part 3: Getting Started" (8 April 2009, ID: G ) Includes lower-level activities as well

24 Recommendations: EA and Cost Optimization Improve Project Investments - Optimize spend in each project - Kill unnecessary projects - Assure complete cost planning Improve Solution Portfolio Investments - Eliminate unused and overlaps, capture technology efficiencies - Move spend from run to grow or transform and innovate Improve Business Investments - IT spend is only 5.9% of business operating expense - Don't miss the other 94.1% of costs to be optimized - Link business spend change directly to specific IT spend change - Support business cost-optimization efforts directly Get going! - Define cost-cutting team, adding sourcing, financial and legal expertise - Carve out time, set short iteration cycles, and generate results - Communicate this value well

25 Want to Learn More? Attend a Gartner Enterprise Architecture Summit Sept 14-15: visit 2009 EA Summit in London for more information. Oct 7-9: visit 2009 EA Summit in Orlando for more information. Become a Gartner for IT Leaders client! Exclusive, pragmatic, how-to research Toolkits including Bank XYZ EA and EA Maturity Assessment Exclusive access to Gartner s benchmarking data Interactive, web-based research product that brings everything Gartner has to offer to help you be successful in your role. Please contact your Gartner Account Executive

26 Gartner Reduces IT Cost in Four Distinct Ways Visit gartner.com/economy now to see exactly how Gartner takes cost out of IT

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