Many companies struggle with an 80-20 split between maintenance and innovation. Here's how some have closed the gap.
The old 80-20 rule: It usually refers to an unequal division of wealth or workload. In IT, it refers to something else--a problem most tech managers don't want to talk about.
Most IT departments spend as much as 80% of their budgets on routine maintenance and day-to-day operations, while only 20% is spent on new technology or business-process enhancements, according to surveys by Gartner and other research firms. That makes it hard to argue that technology is adding value to the business--and that IT departments deserve bigger budgets--when most of the money goes to just keeping the computer lights blinking.
Still, some companies have taken on the challenge of reducing the amount of the IT budget devoted to maintenance and operations, in order to free up funds for new development and business-process improvements. Often, what they've done is employ a hodgepodge of practices and tactics, using a variety of technologies and techniques, to attack specific points of pain. Only a few can claim to have dealt with the problem on a systemwide basis. And none says its accomplishments were easy. But most business-technology managers can learn to get a better handle on expenditures and thereby better service their companies' business goals.
Making the right kind of changes can produce big returns for IT departments. "There are millions of ideas for cutting costs, but they're different for each company," says Martin Reynolds, a research fellow at Gartner. "One of the mistakes I see is just taking what you're already doing and automating it. The biggest opportunity for cost savings is figuring out where to change the process."
It can start with just knowing what technology you have. A lot of companies haven't done an inventory of their technology assets or assessed the costs of maintaining those assets, says Suzzette Jaskowiak, director of support services at Forsythe Technology, a consulting firm that helps companies cut IT infrastructure costs. One company Jaskowiak worked with had hundreds of servers, "and they couldn't tell me what each one did or what it was used for." The fully redundant system could handle up to 100,000 transactions per hour. "The IT folks were so proud that they were fully redundant," she says.
However, the company's service agreement with customers said its systems could be down for 16 hours every month. Not only didn't the company need the redundancy, it didn't need all of the horsepower: "It was only doing 5,000 to 6,000 transactions each hour," Jaskowiak says. That's why she urges IT departments, after they've done an asset inventory, to review their vendor-maintenance contracts and talk to their business units to see if they'll accept a lower, and cheaper, level of service.
For some companies, the only way to make major cuts in maintenance and operations is to make major changes to their infrastructures. Security Benefit Group, an investment- and retirement-services provider with more than $10 billion in assets under management, got its maintenance costs down to around 43% of its IT budget. The solution was to move off two legacy mainframes and standardize on Dell hardware and Windows software. It also consolidated its applications around an insurance-industry software application from NaviSys Inc. and built a data warehouse to contain all of its customer and product information.
"We also made a decision not to invest in areas that didn't give us a competitive advantage," says Brent Littleton, director of IT applications. "We changed our entire mind-set." Security Benefit spends most of its IT dollars on major systems enhancements, new projects, and new products for the company to sell, mainly through independent financial planners. "Those initiatives all add value to the company," Littleton says. The company also closely tracks the costs associated with each new project through a project-management office to make sure they add value. "The IT department has proven itself over time that the projects we undertake give us a competitive edge," Littleton says.
Using a project-management office to monitor technology development and costs is common among businesses with "world-class" IT organizations, says Beth Hayes, IT practice leader at the Hackett Group, a consulting firm that benchmarks how companies manage business technology. Hackett categorizes IT departments as world class if they rank in the top 25% in efficiency and effectiveness in categories such as infrastructure and operations, applications management, planning and strategy, and management and administration of labor and vendors.
The Business of Going DigitalDigital business isn't about changing code; it's about changing what legacy sales, distribution, customer service, and product groups do in the new digital age. It's about bringing big data analytics, mobile, social, marketing automation, cloud computing, and the app economy together to launch new products and services. We're seeing new titles in this digital revolution, new responsibilities, new business models, and major shifts in technology spending.
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