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Making Every Cent Count

Making Every Cent Count

In a climate where the talk around the boardroom revolves around curbs on spending, it seems Australian companies are becoming more determined than ever to achieve maximum bang for their IT buck.

In the current belt-tightening climate, are CIOs being asked to "do less with less"?

At WMC Resources they like to say you can't get a penny out of management unless you can justify the expense. Group manager information systems Einar Vikingur's team has been known to joke that it took them longer to get approval to spend the money than it did to complete the most recent upgrade to SAP.

However, if there's been pressure to justify IT spending before, it's nothing to the pressure being imposed now.

WMC Resources has just gone through the opening shots of a wide and deep corporate restructure that is seeing all service functions reshaping their operations. In the information function, that means a workforce reduction of about 17 per cent so far, with further adjustments to go over the next year. They've also created a couple of internal service providers and are working on streamlining the SAP system and making it more effective, more user-friendly and less customised.

"So, yes, there is pressure on us on spending; but that pressure is there to make us spend more efficiently. It's not to stop us from doing things; it's not there to stop us moving into the future - quite the contrary," Vikingur says.

Likewise, David Boyles, group managing director, technology and services at the ANZ Banking Group, has recently completed meeting with the executive committee to examine the ROI for every significant project. "Basically, they have said that if projects don't have a strong ROI, are not part of a key infrastructure component for projects that do have a strong ROI, or if they are not part of a legal or regulatory requirement, then we're not going to do them," Boyles says.

Which is not to say that the bank doesn't continue to invest hugely in IT. ANZ continues to focus on four key areas of initiative, according to Boyles.

First: achieving a better linkage with internal customers - the business units - by ensuring the bank delivers to their business strategies.

Second: achieving a better focus on people, and continuing to do the things that make people feel like the bank cares for them and is interested in helping them develop their careers. With less than a 4 per cent turnover rate in IT, Boyles says, that initiative is clearly showing fruit.

Third: continuing a strong focus on processes, with the bank recently becoming one of the first in Australia to win CNM2 certification in its international systems area.

Fourth: continuing spending on upgrading and simplifying infrastructure.

In a climate where the talk around the boardroom revolves around curbs on spending, it seems Australian companies are becoming more determined than ever to achieve maximum bang for their IT buck. These are unpredictable times. The hike in oil prices, political uncertainty, last year's stock market crash, the collapse of HIH Insurance, constant talk of the two "R" words - recession and recovery - and small business angst over the GST add up to a climate of enormous uncertainty.

"I think the reality for a lot of people in the big corporate world is there is so much turmoil going on in these organisations that I don't know how much strategic planning is happening in them," says Peter Hind, manager of user programs and InTEP Forum, IDC Australia. "If you're, say for example, the CIO at Impulse Airlines and you're busy making strategic plans and suddenly everything gets taken from you, it introduces enormous uncertainty. That seems to be happening so much that I get the feeling people are taking it a day at a time."

It's a trend that has been under way for a year or so, Hind says. With many of the decisions occurring at the executive management level, CIOs often express a feeling of helplessness. There is sometimes relatively little they can do to influence the organisation, yet decisions can force significant change over which they have no control.

It's a climate where there doesn't seem to be a huge amount of forward-thinking going on, Hind says.

Simsion Bowles principal consultant Peter Walsh agrees.

"I believe business is suffering from IT fatigue," Walsh says. "They have just recovered from Y2K, GST and, in most cases, the set-up of a Web site. Returns are nil-nil and questionable. What we are seeing is firms tending to rely more on in-house expertise and looking more at back office processes. E-business is proceeding but at a quieter rate."

In 2001, organisations are spending IT dollars in two different models, says Fred Balboni, Asia Pacific IT systems integration practice leader with PricewaterhouseCoopers.

First, companies are spending on initiatives that will enrich their top line or enrich the quality of their top line by enriching their sales, meaning Balboni says, initiatives which help them retain their customers, and, in doing so, increase the quality of their sales revenue. Second, they are spending money on initiatives that revolve around being more efficient and producing more for less.

So is it getting harder for CIOs to justify their IT spending? Wrong question, Balboni says. What is getting harder is that people are finding themselves having to justify their spending.

"I think there was a time when people said: Â'GST? Just fix it. Y2K? Just fix it. E-business? Just do it.' Now people have to justify why they need to roll out a big network, why they need to roll out Windows 2000. We're seeing projects requiring justification from CFOs, chief executives and boards. We're not just going to spend because we're going to spend," says Balboni. "What I'm finding is that any project that has a reasonable business case in respect to revenue generation or efficiency/cost containment flies through without a problem."

On the other hand, post-Y2K and post-GST, Balboni says, organisations have massive amounts of pent-up demand for changes and enhancements. Savvy companies are now making a priority those projects that will give them competitive advantage, especially at a time when competitors may not be spending much at all. "Companies still think strategically about IT, and some companies are getting very aggressive in light of the fact that their competitors might be battening down the hatches," he says.

Focus on Value

Take Qantas, where executive general manager corporate services David Burden is concentrating IT efforts on two broad areas: reducing IT expenditure itself in areas such as data centres, networks, PC/LAN and voice services; and investing in new systems which drive short- and medium-term improvements to corporate profitability, either through increased revenue or reduced costs.

"This includes enhancements to our Internet site and CRM systems, and a wide range of intranet applications designed to improve internal productivity. We are also migrating to a more effective reservations/selling system (Amadeus) and to a new revenue accounting system," Burden says.

Or look at Deloitte. Tim Fleming, CIO for Deloitte's Australian and Asia Pacific practices, says the organisation's biggest running project is a 3000-seat Windows 2000 upgrade for both desktop and server. Historically a Novell LAN shop, the global driver for the upgrade in terms of the back end was Deloitte's organisation-wide move towards a Windows platform, and at the front end was stability and operational efficiency. The upgrade also corresponds with the timing of a replacement of desktop equipment.

Deloitte is spending an increased percentage of its budget on Web services and increased development of extranet facilities, enhancement of its Internet site and also intranet development.

"Probably apart from that, a lot of the energy is going into enterprise application integration: getting a lot of our silos of information to talk to each other. [We hope] that will lead to a lot of process automation," Fleming says.

For all the activity, he says, Deloitte today has a much greater focus on demonstrating value than a year ago. For the IT area, the best way to prove the business value of its IT spend has been to demonstrate that value.

"We've been able to do things [that demonstrate value]. We're building extranet infrastructure that's actually aided in the pre-sales process where we've been able to sell services based partly on the fact that we can deliver information globally through extranet services. We're on the front foot with the business in that sense. Rather than just being back-end providers, we're actually helping them sell services. I think that has been the single biggest win for us."

Stronger ROI.

Australian organisations are increasingly expecting a reasonably short pay-back period for IT spending that provides some degree of certainty. They're looking for ROI and they're looking for minimal risk and maximum upside, says Russell Brewer, partner in charge of IT consulting Deloitte & Touche Consulting Group Australia.

"The basic fundamentals haven't gone away," says Brewer. "Organisations want to lower unit costs of processing but they also want to do more and more. So you do need to look at projects and assess them with all the normal business case principles in mind."

Smart companies, he says, are putting their money into network management, business intelligence, getting the organisation ready for the convergence of video, voice and data and the issues of mobility and pervasive computing.

Brewer says that, in the lead up to Y2K and GST and for a period afterwards, many organisations effectively stood still apart from doing necessary work like ERP replacements, adding middleware or fixing up legacy systems.

"Now we're seeing a number of organisations saying we'd better step back and do an overall strategy for how we align IT with all those other parts of the business; [go] back to the basics and [ask]: Â'What do we need? How will we use technologies in the future? What are these technologies going to enable our business to do?' Organisations are starting a planning process that we really haven't seen now for a couple of years," he says.

Much of the planning revolves around e-business. In 2001, IDC predicts e-business will continue to be the driving force behind spending on information technology hardware, software, and services. The bulk of investment in online activities will be made by brick-and-mortar businesses. IDC says the Internet will weave its way back into the back office. The amount of money customers spend on e-business services is increasing, and will continue to increase according to IDC, growing from nearly $205 million in 1999 to a predicted $1135 million in 2004. This will represent a five-year compound annual growth rate (CAGR) of 41 per cent for the period 1999-2004.

Gartner concurs.

"In general, at the moment the people I deal with are mainly involved in the e-business-style initiatives. You still see plenty of money being spent, so while there's a lot of doom and gloom talk out there - and I guess budgets are being cut - it's certainly not in what I look at in B2B commerce, in the B2C area, in CRM," research director Bruce McCabe says.

Equally, many are focusing on their e-business architecture, closely examining middleware and how it sits with the rest of the company's software and how it will "deliver on some of the promises of bigger, brighter, better business", says Jason Beasley-Hahn, Gartner ExpLine manager. However, he says that over recent months the business side of most organisations has started questioning the move into e-business per se. IT and IS people are having a level of difficulty explaining the issues to the executive.

But there are still believers.

The ANZ continues to spend substantial amounts on delivering new products and services over the Web to its consumer market base, small business and middle market corporations and large corporates. "We have plans - most of which were developed a couple of years ago and get updated every few months as we review things - and we just continue to march to those plans in those arenas," Boyles says.

Likewise, WMC is spending significant amounts on Web services, both in terms of improving the company's Web sites and the marketing on those sites; and also improving its intranet, making it more accessible, user-friendly, easier to search.

"We at WMC probably take this far more seriously than other companies in our sector in that we do market a lot of our mineral products over the Internet. That does require a lot of work for us because we don't just put a face onto the Internet. We also maintain sophisticated links into our SAP system and there is work associated with that. All of that we classify as e-business," Vikingur says.

"We have also in the last year or two extended Internet access to all of the employees in the corporation - about 5200 staff and contractors. So we spend not a huge amount of money but a huge amount of effort on what we see as acting in the Internet age."

Business Drivers.

At IDC, Hind routinely surveys CIOs for his Forecast for Management. He confirms that currently the two big business drivers are cost reduction and process efficiency. CIOs are looking at technologies like storage area networks that allow them to consolidate all their disk requirements and reduce the cost of disk farms. They are also examining process efficiency through e-commerce, marketplaces and workflow.

"The converse of that is I don't think people are investing in speculative technologies where the ROI is not easy to identify," Hind says. "I suppose I'm putting in there things like CRM, possibly ERP: big projects where you can't give a 12-month ROI. I think those are harder in this climate to take to the business executive. If you've got something where you can actually show in a 12-month period that it will produce some benefits or some cost savings, or take people out of the process and streamline it, I think that's easier to put through."

On the other hand, wireless technologies are definitely in the equation, he says, as organisations increasingly come to see a hard-wired network as an encumbrance to change. "If your network was more wireless-based, you can be more flexible and I think that sort of flexibility is appealing to CIOs," says Hind. "I wouldn't say they're doing it now but I would say it is seen as something they would like to do over the next couple of years."

Office of the Future.

According to Beasley-Hahn, many organisations are talking about the upgrade to Windows 2000 and what it will mean to them on the desktop. The key issue for many is the business case associated with the upgrade, given the relatively low level of penetration so far.

"There's still an element of Â'we know we must do this', but it has been difficult to define the right words and numbers to make the business case stand up. Is it an opportunity cost issue? Is it about future-proofing the infrastructure to some extent? Or are there other ways to achieve what they want to achieve without going down that track?" Beasley-Hahn says.

He says the office of the future is also starting to "pop into the timeframe".

"We've all been talking about issues such as where the electronic workplace is going with mobile offices, with hot-desking and all of the stuff that we have known and loved and that's been around for a while. But it's becoming more and more of an issue now that technology seems to be catching up with the desire to do that," Beasley-Hahn says.

"Certainly Windows 2000 seems to be a far more stable environment for those organisations that are needing to have a mobile workforce or a workforce that is not ensconced in the traditional seventh floor of a CBD building. Its ability to deal with remote dial-up connections, remote networking and to be stable at the same time seems to be [making it] hot. And, people will actually work remotely through enterprise portals. Again, a lot of this comes back to the whole issue of their e-business architectures, what are [companies] actually trying to do?"

At Philips Electronics Australia, Raoul Punt, group information technology manager, says Windows 2000 has been on his company's roadmap for two years. The upgrade falls under the CODE (Common Office Desktop Environment) roadmap which defines both hardware and software for the entire organisation.

"As of [the second quarter] this year we're in full implementation of Windows 2000, which is fantastic, especially for notebook users," Punt says. "We're talking about 110,000 computers worldwide and we've got one worldwide policy and timeline to put these changes in and we move everybody.

"We're installing EMI - enterprise management infrastructure - which is a complete process to download all new software updates across our Philips global network to EMI servers in each country. And we're implementing Tivoli, which allows us to roll those out onto the desktops, and also to have remote control of desktops to drive down the cost. The cost of EMI, versus putting software on the computers the way that people do with desktop support people, is a matter of 20 per cent of the effort. So we're driving down the cost of supporting the desktop organisation with the view to, on a worldwide basis, signing up a deal with a company to manage the desktop, and bring the cost of that down."

Meanwhile, Philips put in a new SAP ERP system in the middle of last year and is concentrating on getting maximum benefit from that implementation, and also working on leveraging its infrastructure, including one of the world's biggest implementations of Lotus Notes.

"We're very structured and have a complete roadmap for the future and know exactly what we're doing and when it's coming up," Punt says.

It seems the smart companies all do.

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