Grinding Out The Fat
Capacity, capital, cleverness
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Regardless of the level of cuts to be considered, they all should be viewed through the lens of a three-step process. Each step addresses a different cost area: operational efficiency, asset/labor management, and technology-business efficiency-or capacity, capital, and cleverness.
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Here's an example of how the three-step evaluation might work. Assume a company has invested in a sales-force automation system. The operational evaluation looks at capacity. How many servers are needed? Is the application performing at the necessary level? The IT organization, by itself, can accomplish the evaluation and make improvements.
The next step is to figure how much capital is being invested in the application and its level of efficiency. Business managers in the sales and/or operational groups should examine all areas of spending for sales-force automation and apply it to the way the technology is used. Considerations include: How much is being spent to maintain the application, and are sales groups using the tool? In this step, companies discover whether their capital investments in sales-force automation are properly aligned with the business goals and actually support those goals.
This takes companies to the third step: determining the technology-business efficiency of their IT investments. This isn't just a simple ROI calculation, but rather a focus on how well the technology is used to achieve business goals. This analysis is driven by business groups with support from technologists. In the case of sales-force automation, the company may find that the installed package taps into a subset of actual capabilities. It may also find that it hasn't realized the benefits initially expected from the application.
This phase determines how clever a company has been in using technology. The issue it explores isn't whether a technology is inherently good or bad, but rather whether its useor misusegenerates a positive business return. The same technology implemented in different companies can have vastly different results.
Taken together these three steps are iterative and feed back on each other as part of a continuous process. As companies look to strip away costs and evaluate technology purchases, each step will bring technologists and business leaders closer together. A synergy is created that will help both groups discover what they need to improve their company.
The approaches suggested in this article are part of a new IT spending frugality that's rapidly taking hold in companies that have discovered that spending less will get them more. They're finding that IT's potential can be unlocked through more careful spending and consideration. They've decided to move to a path of appropriate spending and profits.
This path can be taken only by managing IT costs ruthlessly and focusing on business benefits.
Erik Keller is the principal of Wapiti LLC and a research fellow in residence at AMR Research. He is the author of Technology Paradise Lost (Manning Publications, April 2004).
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