Is paring IT investment back to the bone the best strategy for surviving the downturn? Dr Richard Williams argues the case against.
Whenever they hear the word ‘recession’, the first thing most organisations do is adopt a siege mentality, stop all expenditure deemed ‘non-essential’ and hunker down for a long winter. Budgets get cut, new initiatives are stopped in their tracks and everyone concentrates on keeping the lights on as cheaply as possible.
It’s like a human body, when faced with exposure to frigid temperatures, automatically cuts off the blood supply to peripheral vessels in order to preserve core temperature. Sadly, if left too long, this often results in frost-bite at the extremities and in advanced cases – amputation, causing great harm and long term debilitation to the body as a whole.
As in life, so it is with IT. We’ve lost count of the times we’ve seen major IT initiatives cut off in their prime, with already committed expenditure thrown away, because the economic wind has changed direction. A classic example in our experience was when a major global automotive manufacturer, sensing a down-turn in its profits, cancelled the development of a new product definition system that would demonstrably have saved it millions, preferring instead to soldier on with a raft of legacy systems, the longer term costs of which would swamp any short term saving made by the cancellation.
This kind of reaction is common and can result from many individual factors but, at the very least it suggests two underlying truths. Firstly, that the organisation has failed to understand the fundamental relationship between its IT provision and the business it’s supposed to support. Secondly, that there is no objective mechanism for the business to link IT investment with strategic business goals or benefits – a lack which makes it possible to cut the blood supply to organs that may prove vital later.
The first point is well understood. Despite indignant protests to the contrary, most business people still see IT as a necessary but largely incomprehensible cost. And IT leaders don’t, in the main, know how to educate them. That’s why so many businesses periodically attempt to outsource the ‘problem’ only to find themselves with a new kind of management headache. Of course, they should regard IT as a premiere resource for innovation in their ability to ride out the storm and emerge smiling into the new sunlit dawn, but this requires consideration of the second point.
How many organisations can truly claim to be able to measure the contribution of the IT department, and its portfolio of activities, to the achievement of strategic goals and benefits? In our experience very few can do this convincingly. Without this ability, how do you know with confidence which activities to cut and which to invest in, when the going gets really tough? All too often. these decisions amount to little more than the outcome of a set of competing short term special interests. In a recession, a time when rapid adaptive change is a given, it’s especially necessary that the real contribution of the IT department to the realisation of the business’s goals is comprehensively and objectively understood. Unfortunately there remains a lamentable lack of the means by which businesses can accomplish this.
First things first
The first thing IT leaders should do in times of business stress is engage with the business leaders within their organisations to construct a mutually comprehensible framework for innovative change. The main purpose of such a framework would be to spell out and make clear, in a common language, the precise relationships between value-generating business processes and the IT services that support them. I’m not talking here about traditional Service Level Agreements. What’s needed is a model that describes and predicts how proposed changes in the way a business behaves will predict and define required supporting changes in IT service provision.
This model concept can be made clear by a concrete example. There is a sudden major downturn. A business is under heavy pressure to cut operational costs. IT is a major cost element and the business units need to bring IT charges more into line with the profile of revenue-generating business transactions being supported by the IT estate. The business requirement is clear – the IT cost model must be optimised to reflect the revenue generating profile of the business. This requirement can be easily measured and its achievement, or otherwise, demonstrated. Its benefits are clearly quantifiable. But how does the organisation decide which portfolio of projects it should implement to achieve this change? Which activities should it cut and which to invest in? Usually, this is where competing agendas muddy the water. This is where the model concept comes into its own.
Such a model would contain a number of elements that described different aspects of the business and its IT service provision. In the above example, one such element would describe the possible alternatives for the IT cost model experienced by the business users. Currently, the model may state that IT costs are set as a fixed budget at the start of each financial year and are incurred regardless of usage profile across the year. The new business requirement would point to a state in the model that describes fully aligned IT costs that vary over time, dependant on transactional usage. The gap between the two states in the model describes the magnitude of the required business change.
So far so good. Now comes the important point. This business-oriented element in the model would be explicitly linked to other, related elements that describe different aspects of IT service provision. For example, it might be linked to an element describing possible capabilities for monitoring end-to-end transactions across the IT infrastructure. It may also be linked to an element describing alternatives for the metering of infrastructure usage. In such a model, required business change in the first element would dictate the required technical changes in the other two.
This kind of model is entirely buildable. It would represent the collected knowledge, both business and technical, across the enterprise. It would encapsulate the organisation’s core intellectual assets. It would be an enormously powerful tool because it would accurately describe the present and the strategic future, and describe how to move between the two.
It would do this in terms comprehensible to all stakeholders in the organisation. It would provide an objective means of cutting through parochial agendas and would keep the organisation focused on the strategic imperatives, goals and benefits. It would provide requirements for outsourcing initiatives and the means to judge supplier’s capabilities. But most importantly, it would provide the integrated view of the enterprise necessary for survival through difficult times. And when the storm clouds have finally dispersed, as they inevitably will, it will be a tool that can provide persistent and lasting benefits for both IT and the business it serves.
No business is operating like this right now. When IT and business leaders finally begin to cooperate in this way, maybe recession-induced frostbite, and amputation, will become as rare as smallpox.
Dr Richard Williams gained a B.Sc. (Hons) degree from Birmingham University in Biological Sciences, a M.Sc. degree from Reading University in Pure and Applied Systematics and a Ph.D. from Warwick University in Molecular Biology. He is a Fellow of the Linnean Society of London and a member of the Royal Institution. Over a period of 20 years in the IT Industry Dr. Williams has successfully started, built and managed his own IT companies gaining first hand experience of almost every aspect of IT design, sourcing, delivery and management. Procertis is an independent consultancy and Intellectual Property development company focussed on IT and business inter-relationships. For more visit www.procertis.com.