Harrah's Entertainment CEO Gary Loveman, speaking at the InformationWeek 500 Conference in Monarch Beach, Calif., last week, framed the spending challenge for his casino industry in these terms: "In a business that loves to consume capital, we need to find ways to make our businesses more profitable without building multibillion-dollar properties." For Harrah's, that means taking fuller advantage of existing infrastructure--for instance, by extending the company's Total Rewards customer-loyalty program beyond gambling to shopping, dining, and other services, and by licensing its gaming expertise to third-party operators such as cruise lines.
Loveman's perspective, which came at a conference session that also featured Harrah's CIO Tim Stanley, applies as much to the nation's big business technology organizations as it does to big business. The old IT thinking was that massive capital and project spending was the path to higher profits. The pillars of an IT organization's success and influence were its gleaming data centers and all-encompassing ERP and CRM rollouts. But deployment of that IT infrastructure was only the start; the maintenance and upgrade became the recurring cost of doing business, to the point where spending on upkeep accounts for 80% of the average IT budget, with only 20% left for the new stuff that drives new revenue opportunities.
While Nicholas Carr's 2003 "IT Doesn't Matter" treatise was roundly derided as simplistic, if IT organizations can't pull themselves out of the 80-20 morass, they will never matter as much as they think they do. InformationWeek's recent Tomorrow's CIO research indicates that CIOs are making little headway in reversing 80-20.
If you think you can lay low under the corporate radar or continue to argue that the 80-20 rule is an immutable law of IT physics, then you're due for another wake-up call. CEOs aren't buying it anymore, and some of the most aggressive ones already are demanding that their CIOs free up more money.
When asked last week if Harrah's had made any progress on the 80-20 front, CIO Stanley said it had gotten its legacy-to-new-spending ratio down to something like 60-40--but not without considerable, focused effort. So is that 40% good enough for CEO Loveman? No chance. Every dollar Harrah's can divert from IT maintenance, Loveman reasons, is a dollar it can invest in a new customer-facing or other potentially game-changing system--or to some non-IT effort that will bring in more revenue and profit. Loveman said he'll never ease up.
In bringing in Randy Mott as Hewlett-Packard's CIO two years ago, CEO Mark Hurd had marching orders: Slash sunken IT costs. Never one to do anything half-heartedly, Mott set out to turn the 80-20 rule on its ear at HP, committing to shift 80% of his organization's resources to new projects and reserve only 20% for maintenance, all by 2009. Part of that initiative involves the consolidation of 85 worldwide data centers into six, 100 work sites into 29, and 5,000 applications into 1,500. (We'll check back with Mott to see if his organization is on course.) Likewise, General Motors, under intense financial pressure, is aggressively standardizing processes and systems worldwide to improve the delivery of technology services at much lower cost.
It's no coincidence that many of the hottest technologies and technology architectures of the day--virtualization, SOA, cloud computing--are considered means to move IT dollars and efforts out of maintenance mode. It's as difficult a movement as IT will ever face. But face it IT must.
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