Let the Other Guys Build It
When there's no avoiding spending money on software, it makes fiscal sense to stay away from software development, says Michael Radcliff, CIO of Ingersoll Rand, the industrial manufacturing company (2001 profit margin: about 4.5 per cent).
Radcliff says he lets vendors deal with software development. Instead of customising software in-house or allocating staff to develop programs, he gets his vendors to do the development and customisation work on applications as often as possible. That way, the cost of development is not borne by him, and there's an immediate ROI, Radcliff says. "It keeps the capital investment on the vendor's balance sheet. And if we're not spending money on development, we can put those funds toward deployment."
Radcliff is rolling out a new finance initiative that will add options for customers who want to lease, rent or buy items such as golf carts, air compressors or construction equipment from Ingersoll Rand business units. When he bought the software from a vendor (he declines to say which one), he gave its representatives a list of customisation requirements and let them do the development. "We don't have a lot of discretionary spending, so we have to be very, very careful where our money goes,"Radcliff says.
Hunt Down Waste and Kill It
Some of the hidden costs of IT are not exactly IT-related. But that doesn't mean you can't find savings there.
Cargill's Taylor discovered that IT employees were calling 411 (directory assistance calls) so often that it was costing the department hundreds of thousands of dollars in phone charges. Given his company's slim profit margins, Taylor describes himself as a stringent penny-pincher. Every organisation has a surprising amount of waste, he says; you have to look in all the nooks and crannies, and train your staff to do the same. "If you create a culture where your employees watch for the little things that cost a lot, you can run a lean organisation without sacrificing the important things,"Taylor says.
Taylor put a stop to the costly calls by blocking the 411 function in the department's phone system. He then posted a link for nationwide yellow pages on the corporate intranet. Without the calls to information, Taylor saved about $US250,000.
Most CIOs can say where they spend money in their department, but they don't have a handle on their actual costs, says Eileen Birge, vice president of the Concours Group, a Houston-based IT consultancy.
"They don't know where the money really goes,"Birge says. "You may spend $10 million in a year, but how does that break down in terms of projects, maintenance, salaries, development and operations? A good understanding of actual costs and their drivers is a very important factor and can save you a lot of money."
CIOs should do an in-depth analysis to find which major groups or activities cost the most, and then find areas to cut in those places, she says. For example, if data storage is eating up a lot of funds, e-mail is often the culprit. By getting employees to clean out their e-mail boxes more often, CIOs could save 15 per cent to 20 per cent of their actual costs, Birge says.
After examining his spending, Robert Tolbert, vice president and CIO of Lyondell Chemical (2000 profit margin: 10.8 per cent) saw that hardware and software were the major cost centres for his IT budget. Tolbert, who holds the same titles at Equistar Chemicals, a joint venture between Lyondell and Millennium Chemicals, says he is in the process of standardising the desktop computers and software at each of Lyondell's and Equistar's 33 locations worldwide. Prior to standardising, Tolbert had to juggle more than 1700 different software tools and four different operating systems. Upon completion of the project, he will oversee 400 applications and two operating systems. The project will enable him to slash maintenance costs on multiple platforms and consolidate his resources into one centralised data centre. This data centre holds the resources to manage approximately 8000 desktop and laptop PCs all over the globe.
"In tight times, you invest in projects that have a swift payback,"Tolbert says. "I wanted the desktops and software to be as similar as possible so it was cheaper and there were fewer variables to support."
Budget constraints aside, CIOs know that it makes sense to spend money in IT and cut costs elsewhere in a business. Arrow Electronics' Settle recently rolled out a new set of services on the company's Web site that lets customers view product availability and see how other customers are utilising Arrow's products. The project ate a chunk of his budget but saved millions of dollars in call centre and help desk costs for the company.
Keeping all projects in line with business goals is essential for every CIO, but it's particularly necessary when one's IT budget is tightly constrained, says Tom Mangan, a partner in the technology integration services practice at Andersen, a management consultancy in Atlanta. "Every project must be business-focused, with the strongest business case and a clear ROI so that every executive knows where each IT dollar is going, and knows it's a business investment,"Mangan says.
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