Furthermore, the highly efficient companies view their IT suppliers as important strategic partners. They track the length of agreements with contractors and strive to convert high-tenure contractors to internal staff. To be truly productive, companies must control for a range of ever-changing factors—a churn of people, technologies, and market demand. The highly efficient companies in our research have found ways to account for the inevitable shifting of resources and staffing (in-house and external contractors) that occurs in most IT organizations.
Part of their job is helping all parts of the business understand that while IT cost optimization includes cost-cutting, the focus should be on eliminating low-value activities. As a CIO, engage business leaders to ensure that optimization reflects business priorities and that you’re looking at IT costs in the context of end-to-end business processes. Nhu Le is a manager at Strategy& with over 10 years of advisory experience across Australia, Hong Kong, Japan and Malaysia markets.
Firstly, the operational cost is high, whether it is to maintain a custom built solution on COBOL, or vendor negotiations with 3rd party providers on long term lock-in, outsourcing contracts are costly compared to the level of service provided. This in turn can lead to an IT operating cost structure that is highly fixed and difficult to flex to future changes in business demands. However, overemphasis on short-term wins risks missing the long-term opportunities in bold strategic bets that deliver long-term IT cost transformation. A short-term focus could lead to a vicious cycle of degraded IT quality, agility and flexibility of IT capabilities leading to a greater perception that the IT function does not deliver value and is not a true business partner. If not planned carefully, IT organizations might find themselves in a difficult situation, with limited runway to grow and play offense after a sustained period of defensive cost reduction. Maryville Consulting Group responded with an enterprise business management solution built on the market-leading, cost transparency platform, Apptio.
They do not natively support the speed, sophistication and agility required by the business at the right price point and rely on formal relationships. The outsourcing arrangement during the build stage often gets further complicated with multiple vendors and subcontractors. Used prevalently in multi-staged waterfall-style project management methodology, the subcontracting approach emphasizes scope and cost control, at the expense of agility and adaptability. The clever companies, it cost transparency on the other hand, will adapt to change by applying RPA to inefficient processes, not merely painting over the cracks in the plaster but replastering the wall itself. The likes of Basware, Kissflow Procurement Cloud, Automation Anywhere, Stratas and our good selves here at Aito offer solutions to help ease the complicated nature of the P2P process. What we can’t control is the risk of post-pandemic apathy, where companies revert to doing what they’ve always done.
Imagine a product catalogue that does the ordering for you (either straight to the vendor’s system or via email), recording the goods receipt along the way. The RPA cross-examines the receipt against other orders and invoices, and applies preconfigured rules to make sure the transaction is approved or not. Not only does this example make the invoicing process smoother, it makes it transparent, which reduces stress, error and improves lines of communication.
Impementing Technology Business Management Tbm
To capture value from the five core capabilities highlighted by our benchmarking work, companies must explore an integrated set of operating-model changes, not just isolated initiatives to close individual gaps. True breakthrough efficiencies typically occur only with a combination of best practices in all five areas. For instance, strict cost controls, effective sourcing approaches, and IT demand-management practices have made it less expensive for some highly efficient IT organizations in our benchmark to run their infrastructures. They routinely inform internal customers about the cost to meet their demands for IT service.
And this is without human intervention, at least until the RPA finds something that doesn’t quite fit, in which case it is flagged for inspection . This level of artificial intelligence to interpret and process documents will save time and massively reduce costs. “Regularly scan the marketplace to stay abreast of what other organizations are achieving to gain knowledge of what is really possible,” advised Mr. McGittigan.
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Up until now, most IT operating cost reduction measures stayed around the fringe of the current cost structure, unable to make significant sustained reduction due to high numbers of vendors on locked-in contractual arrangements. When the topic of IT cost transformation is discussed and governed within the IT department only, the risk is high that it is treated as a list of one-dimensional cost levers only. Without partnering with the business to truly tie the values and services provided by technology investments, IT department will find it hard to pivot out of the defensive corner into a strategic business enabler. IT should move beyond being a simple service provider and order taker required to seek efficiencies. Cost reduction exercises should be a joint effort between the CIO/IT executives and the CFO and Business Executives. All exchange of documents becomes automatic, including requisition, order confirmation and invoice validation such as reconciliation against purchase orders, payments plans and receipts.
IT budget as a percentage of revenue has also been flatlining, considerably lower compared to peers in the US market. All these signs point to the fact that at large domestic Japanese organizations, for the past decades or two, there has been very little IT investment related to business growth, demonstrating that IT has been mostly managed for cost efficiency. Implementing this form of framework provides significant opportunities for you to streamline your processes and manage IT as a complete business entity. Knowing what your customers, end-users and business stakeholders want is key to making sure that your strategy is aligned with their objectives. As a CIO, your first priority should be to make all IT-related activity costs transparent. If, say, your data center costs are above industry averages, that area might be a potential candidate for cost optimization.
First, due to the uniqueness of the local market, a large percentage of 3rd party providers are local Japanese companies operating across both software development and ongoing maintenance. This highly localized market concentration likely restricts the flow of global innovative solutions into the local market. The accumulative effect is that domestic Japanese organizations have to pay a lot more to develop and maintain their IT assets.
In the long-term, these have strategic implications for organizations that lack the required skill set to pivot IT from a defensive to a strategic enabler position to support growth and new revenue models. In Japan, within large IT user companies, IT services are still mostly perceived more as a cost center, and less as a business value generator. A serious skills shortage also adds to the challenge of making the internal IT organization sustainable, cost effective and innovative. As a result, a large number of organizations adopt a common approach to outsourcing to 3rd party providers as a measure to control cost and de-risk. Every company recognizes the need to be strict about costs—particularly when it comes to vetting, sourcing, and implementing the wide range of technologies required to conduct business in the digital era. And not every senior leadership team takes the time to define clear metrics or mechanisms for ensuring that IT costs are being regularly reviewed and controlled.
Having a clear view of IT systems allows decision-makers to define their needs more effectively, making it easier to manage business demand and sourcing delivery. There are several important considerations for CIOs when thinking about how to streamline costs, and TBM has been specifically designed to respond to each of these challenges. To gain alignment between IT, Finance, and Business Unit leaders, TBM provides a standard taxonomy to describe cost sources, technologies, IT resources , applications, and services. The TBM taxonomy provides the ability to compare technologies, towers, and services to peers and third-party options (e.g., public cloud). Since the Great Recession, the CIO’s overall strategy has included conducting a cost-benefit analysis of all initiatives that require IT services.
- However, overemphasis on short-term wins risks missing the long-term opportunities in bold strategic bets that deliver long-term IT cost transformation.
- Up until now, most IT operating cost reduction measures stayed around the fringe of the current cost structure, unable to make significant sustained reduction due to high numbers of vendors on locked-in contractual arrangements.
- Furthermore, the highly efficient companies view their IT suppliers as important strategic partners.
- That way, the business units can pay less in chargebacks when they consume less than the amount budgeted for IT services.
- For instance, strict cost controls, effective sourcing approaches, and IT demand-management practices have made it less expensive for some highly efficient IT organizations in our benchmark to run their infrastructures.
A finance organization needed an automated way to allocate and invoice shared services costs across 20+ globally dispersed business units. The current process required subject matter experts to spend a wealth of time maintaining, editing, and generating shared cost allocations. The complicated Excel worksheet used to facilitate the process lost its usefulness and became so complex that only a few resources had complete command of its pivot tables, macros, and formulas.
We believe that if less efficient companies can similarly focus on what works, they, too, can improve their IT operations and free up resources for digital initiatives. Over time, they may be able to establish self-funding mechanisms for digital innovation and, ultimately, self-sustaining IT operations. Technology Business Management is a framework specifically designed to help CIOs to run their IT structure as a business in its own right, managing conflicting priorities by creating and automating IT cost transparency.
Benefits Of Tbm
In the highly efficient companies, there are clear incentives for the business units to monitor and continually improve their demands for IT resources. Some of the companies in our benchmark, for instance, employ usage-based pricing for IT services, rather than fixed prices. That way, the business units can pay less in chargebacks when they consume less than the amount budgeted for IT services.
Tbm Implementation Challenges And Recommendations
But rather than add more components to an already complex system, the highly efficient companies are exploring cloud technologies and automation—for instance, automating server deployments and load balancing. These changes have given companies much greater flexibility in meeting demands for computing power and storage capacity while still handling high-volume, highly variable workloads. Additionally, in the highly efficient companies, IT leaders work with business-unit leaders to define critical performance metrics, such as cost of IT per user, transaction, or interaction.
A TBM model maps and allocates costs and resource consumption from their sources to their uses, from the hardware, software, labor, services, and facilities IT leaders procure to the applications and services they develop, deliver, and support. In essence, the model is what translates between the layers of the taxonomy (e.g., IT Towers to Products & Services). The TBM model includes the taxonomy objects and layers plus the data requirements, allocation rules, and metrics needed to create https://globalcloudteam.com/ transparency and enable the reporting that is needed for the value conversations of TBM. This is particularly poignant in the Japanese market, where the role of CDO/ CIO, while on the rise, only exists in a small number of organizations. The majority of organizations still relegate the management of IT to a Head of IT department role resulting in the topic of IT cost reduction becoming an inwards facing exercise focused on maximizing efficiency within the walls of the IT department.
Mapping The P2p Process With Automation
They implement chargebacks in ways that create incentives for business units to clarify requirements, and they negotiate contracts with vendors that align interests and assure joint commitment to productivity-driving innovations. They have improved their time to market and the quality of their decision making, while devising clear road maps to deliver new business and IT capabilities. What’s more, they are boosting their odds of success with digital transformations that may be critical to business survival. Indeed, they are realizing a substantial efficiency dividend and then reinvesting that in their most critical priorities. We believe that many players operating at lower efficiency levels can capture this same prize by focusing their attention on the right levers. Related to the need for strict cost management is the need for IT and business units to have a clear and shared understanding of business-unit and functional priorities, ranked according to their contribution to business success.
Building Efficient It Organizations: Insights From Our Benchmarks
Under these approaches, IT and business leaders jointly develop, test, and learn from frequent software iterations. Decisions must be made quickly—a marked change from the use of the traditional waterfall approach to development, which can get mired down in bureaucracy. To enable agile operations, the highly efficient performers rely, to a large degree, on best practices in standardization, simplification, and automation. They employ repeatable processes for making changes to products and systems, always anticipating future needs. But in cases where system changes would affect multiple agile product teams or process steps, companies have created a central “change-management office,” with representation from across the IT organization and the business units. This governing body can review and approve change requests quickly, thereby establishing a strong business case for go/no-go decisions about what to simplify and how to sequence any changes.
Apply this level of automation to other links in the process and it’s like lubrication for your bicycle chain. The life of an invoice from point A to point B isn’t straightforward, but the journey has improved thanks to software. Take a look at this Unilever cartoon from 2017 for a snapshot of what progress looked like back then. It could work similar to ordering a parcel and then tracking it via UPS, in that the information comes to you before you’ve even thought of looking for it.
We built the cost distribution model, generated reports, and automated the creation and distribution of invoices. The less efficient companies in our research tend to adopt industry-standard technologies only when there is competitive push to do so. The highly efficient companies, by contrast, actively participate in standards-making organizations and bodies, and they incorporate industry standards within their IT architectures as early as possible. In these ways, they foster compatibility with external partners’ systems and can avoid the need to make significant changes as existing systems age. Again, in agile work environments, where delivery times are expected to ramp up significantly, such adherence to standards becomes even more critical.
We used a maturity index based on 250 predetermined best and worst practices in IT management. The companies in our data set were ranked as either “efficient” or “not efficient” based on their IT spending and the presence of these specific capabilities in their IT organizations. The TBM taxonomy is needed in order to support the modeling of costs and other metrics.
The highly efficient organizations in our benchmark also boast flat structures; they use collaboration technologies rather than managerial hierarchies to disseminate information. They tend to increase the span of control given to IT managers; on average, more than 15 people report to each IT manager at these companies, compared with between 5 and 10 people per IT manager at less efficient companies. Within these flat organizations, managers focus on coaching their teams but also strive to keep themselves up-to-date as technologists.
Technology Business Management is an IT management framework that implements a standard IT spend taxonomy. TBM enables organizations to disaggregate IT spending into smaller, consistent categories to provide CIOs and other C-suite executives with a more accurate and detailed understanding of their organization’s IT costs. This allows CIOs to identify duplicative or unnecessary spending and to make better informed decisions regarding future investments.
He already has a list of cost optimization initiatives that includes application rationalization. These initiatives would serve the business’s interests far better than delaying the portal project . Another dimension to this highly fixed IT cost structure is the over-reliance on heavily customized packaged solutions. Domestic Japanese organizations have traditionally favoured highly customized package solutions or even custom-built software to tailor to their unique business needs. This approach has had significant impacts to the IT cost structure in two fundamental ways.