IT Cost Reductions – Near term tactics: Consolidation & Utilization

This is the third near term tactics post on a topic ever present in today’s economic climate: cost reduction. Though the US economy grew by 2.5% this past quarter and despite some willingness by companies to invest in IT (while there is a reluctance to invest in staff),  the overall corporate climate is to continue to cut costs. In this climate, IT must also deliver efficiencies.  As I mentioned previously, first ensure you understand the business drivers behind the cost reduction for your company so you can appropriately shape your program in IT to meet those needs.

Assuming you have that understanding, I have recommended 5 near term areas that should provide real savings and also tighten up your organization to make it a leaner and more effective shop. The first area to tackle is what you spend on vendors and services or third party spend. The second area to tackle is making sure you have a ‘clean’ shop. These are covered in the previous posts. These should yield savings of 3 to 10% in the first year if applied effectively. But you will need to do more. The next two tactical areas to pursue are consolidation and utilization.

In almost every shop, just based on natural growth, company acquisitions, or inadequate discipline, you end up with multiple solutions for the same processes or business services. And also in almost every shop, there are the future architectural diagrams where everything becomes unified and integrated at some point in the future. This typically occurs after one or two decades and several miraculous projects. What you should do as the IT leader is make some tough decisions where you have multiple systems and significantly more expense with little added value. I recommend starting with the IT systems. This would include everything from asset management to change and problem management to systems management tools. Gather suggestions on where the most problematic or redundant systems are in IT from your staff. It is likely that the areas with most overlap are also the ones with the most friction and religious fervor. One example I encountered was three different PC software configuration management systems including one that was built and maintained in-house!

We assembled a team that included representatives from each of the competing groups, added some strong analysts (including from finance) and basically did a product bake-off. It was also easy to establish that our bank was not going to be producing and marketing PC configuration software, but instead that we would ensure the critical features the in-house solution delivered would be required of the off the shelf solution. The bake-off was completed, we selected the single solution, and then we ensured that the leadership commitment was fully communicated so everyone knew we were driving to a single solution quickly and fully. This yielded significant in-year savings. A quick survey of your shop will find areas where having two or more is of no significant added value at additional cost, and those areas where it may add value or it may have high hurdle costs (e.g., multiple development tools). My recommendation would be that you have singular toolsets for all IT production processes (change, problem, etc), financial processes, and HR and administration processes. Systems management and asset tools should be multiple only where there are compelling reasons to do so. If IT cannot agree and leverage singular solutions, how will you convince your business partners they do not need multiple loan, banking, or general ledger applications? And the IT consolidations can generally be done more quickly and smoothly than business systems consolidations. So start within the IT shop.

For business system consolidations, most of these initiatives could not be classified as near term. So I will primarily cover this area when I talk subsequently on your long term efficiency and quality approaches. For the near term, though, get in place a full inventory of your business systems and identify their costs by system. Then take that information along with the identified overlaps and sit down with your business partners, particularly those knowledgeable on how the business operations work, and discuss what should be done with the overlaps. You may be surprised but occasionally the business team will say, ‘With that cost, we think we can turn that system off as we do not really use it and it is not worth it’. Chalk it up as a win, decommission the system and count the savings.

In addition to consolidating or eliminating redundant systems, another near term tactic is to address poorly utilized resources. Every sizable IT shop should have a team of performance experts for their major resource pools. If you have a mainframe, than you should have a least one senior engineer for every 5,000 to 10,000 MIPs that on an ongoing basis, goes through all of the work running on the mainframe and identifies poor code, improper parameters, wasteful routines, etc. There are a plethora of tools that your most senior performance management experts can use to identify where the waste is. And most of the fixes are relatively simple and low cost. And you will quickly save hundreds of MIPs, gigabytes, terabytes, etc. You will not have to make that next purchase of the mainframe or servers or disk. Instead, you will recapture your current capacity. You should put in place these performance management teams that identify such waste, provide the detailed solutions to your application or infrastructure engineering teams to implement for each major resource pool: mainframe, server, disk, and network. And the requirement should be that they identify and help implement every quarter savings worth 3 to 5 times the cost of the team. Make sure you provide the sponsorship of the efficiency implementations with your application and engineering teams. But, if you provide that backing, you should find strong utilization savings within 3 to 6 months. And even better, you will find performance improvements in your systems with wall time reductions in batch, better user response times, less latency — all because you eliminated wasteful processing that was hogging resources.

We are almost complete on the near term efficiency tactics — I will be covering staffing in the final segment. I should point out that the two areas discussed today: consolidation and utilization, can only be address if you have adequate senior engineering talent and leadership. And you must give them the leeway to identify waste and issues without incurring penalties but instead garnering your support to fix them. This is a critical leadership requirement. You must encourage your engineers to fix the problems and provide them the support to fix them. Going forward you must also insist on high standards so you do not create more problems, but when you are starting to fix things, you do not help your cause if you punish the very team who is trying to fix the issues.

What savings have you been able to achieve by consolidating systems? Where you able to execute them and achieve the savings in the short term? or did it take longer?

Do you have any good performance management approaches to share? As the industry moves to cloud computing, efficient utilization and management becomes more critical (but should be easier). What are your thoughts on how to ensure you are getting the most efficient use of your resources in the cloud environment?

Next week I will post the last near term efficiency tactics topic. I look forward to your feedback.

Best, Jim


About Jim D

Jim has worked in the IT field for over 25 years and as a senior leader for over 15 years. He has successfully turned around a number of IT shops to become high performing teams and a competitive advantage for their companies.
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