Size Doesn't Matter
- 11 June, 2003 12:35
As IT manager for Kendall Airlines, Peter Adams used to routinely attend meetings at parent company Ansett Airlines where he had as many as 10 Ansett specialists lined up against him as the sole Kendall representative in the room. In those meetings, he says - meetings where his was often a lone dissenting voice - the merits of the argument rarely held nearly as much weight as the fact that the bigger Ansett team had the sheer muscle to win any disagreement. That both companies were accountable to exactly the same set of shareholders seemed to be entirely lost on those opposing his point of view . Adams does not argue that Ansett, in keeping with many large IT shops, had lost sight of the value equation in its IT delivery - not exactly, at any rate. But he does insist that the relatively tiny Kendall IT group did have a much clearer view of the cost benefit relationship. Smaller shops often do, he says. "If something was going to cost Kendall three times as much to implement because it was an Ansett policy, it was the same shareholders paying for it in the end, because the subsidiary is a wholly-owned company. That sort of logic seemed to escape them - that was the stupid part about it," he says.
Clearly, IT managers at small- and mid-size companies have their work cut out for them in IT delivery as they battle minuscule budgets, a total lack of clout with vendors, sometimes huge difficulties attracting and retaining staff and sheer lack of resources. But they do seem to know how to keep their IT costs down. Research firm Gartner finds the IT budget per employee grows as an enterprise gets larger, with the most significant spending growth spurts occurring as the company moves into the $US1 billion to $US3 billion range, and again as it crosses into the $US3 billion to $US7 billion range. Gartner finds enterprises hit a significant IS spending growth at around the $US1 billion size, when infrastructure and staff costs peak.
Adams, now a lecturer in IT at Charles Sturt University, has no doubt it is the IT departments with small staff numbers who achieve most by way of cost benefit in IT delivery. "I ran the IT for Kendall Airlines (revenues $200 million) with three staff and lots of contractor relationships around the country - and world - for four years," says Adams. "I always contrasted this against our parent Ansett, which had 500 IT staff plus as many full-time contractors and what return each company got for its investment. Of course, it's none now.
"What always struck me was the corporate assumption or mentality in big companies and consultancy groups, that the 'little guys' - especially in regional areas - mustn't know what they are doing, that bigger is better." That assumption is ridiculously inaccurate, he says. Both the difficulties in managing IT and business, and the cost of delivery inevitably increase exponentially as companies grow. But the situation was worse in Ansett, where every project and section within IT quickly became its own entity with all the associated political and fiefdom implications. Adams says statistics show that the bigger the organisation, the higher are the costs per head of supplying IT. Technology simply costs more to deliver in larger organisations, he says, because of the complexity of integration and of creating external, often global links.
There is no doubt small business IT shops suffer any number of privations not faced by the big boys. For instance, big businesses have the luxury of appointing the best possible person to a particular task, and have the dollars to spend on outside consultants. Nor can smaller shops access the economies of scale available to larger organisations. Small shops cannot generally afford to live on the bleeding edge; they are much more likely to be limited in the technology choices they make. But IT managers at these companies say they have found various ways to keep up with their better endowed colleagues.
Redefine Best Practice
With an IT team of just seven, Blockbuster Australia can deliver on IT partly thanks to its partnership with Marconi, and partly because it can fall back on the large US IT department in its parent company in the US when necessary.
IT director Steven Ash says while many bigger IT groups can become bogged down, hand-braking the business by being so big, slow and bureaucratic, smaller more focused teams like his tend to react to what the business wants even though it may not always be the IT best practice way of doing things. "We may have to cut some corners here or there," Ash says, "but at the end of the day I would put my hand on my heart and say 9.5 times out of 10 we get the result the business is looking for."
But Ash says when the new US CIO, a former PriceWaterhouse consultant, wanted to examine ways to give the entire IT group around the world more of a global perspective, one of the issues revolved around definitions of best practice. "A lot of the bigger firms, PriceWaterhouse being one of them, recommend best practice for this, best practice for that," Ash says. "But IT best practice is not always best practice in the real world, or for any particular business.
"For example, IT best practice would say that, based on the amount of users we support, the amount of equipment we've got, we need x amount of people in our IT department to support them. Now that might be IT best practice, but from the revenue of the business, that's not Blockbuster best practice. Blockbuster best practice is best IT support for the amount the business can afford."
Organisations can deliver better by ignoring conventional definitions of best practice in favour of their own, Ash says.
The Power of Common Sense
There is also an argument that smaller IT shops tend to be much more grounded and realistic in their approach to service delivery than their bigger compatriots. The larger the organisation, the more likely common sense can fly out the window, Adams says. For instance in his days with Kendall his team wanted to connect the Kendall network to the Ansett network to simplify communications and gain access to various systems. Ansett refused to facilitate the move unless Kendall adopted Ansett's standard desktop and all other standards throughout the organisation.
Not only would this have ended up tripling the cost of IT delivery to staff, Adams says, he could see no logic to the argument that demanded it. "At that stage Ansett used Lotus Notes. Now whether Lotus Notes is a better system than Exchange is neither here nor there," says Adams. "The fact is that we had an investment in Exchange already and they had an investment in Lotus Notes. Where was the logic in forcing us to rip out our existing implementation?"
The argument raged unresolved for 12 or 18 months until News Limited sold its 50 per cent share of Ansett to Air New Zealand. And as if to underline the nonsense of the original hardline Ansett stance, Air New Zealand was running Exchange and spent the next 12 months converting Ansett to Exchange. Likewise, while Ansett was intent on rolling out a new reservation system relying on IBM technology and PCs as opposed to the existing dumb terminals, it was Kendall that could see this was a bad idea for tiny infrequently-manned regional airports sitting on the edge of small towns where telecommunications were not necessarily up to scratch and the risk of theft much higher with PCs than dumb terminals.
Squeezing Out Value
With a commercial IS department of 15 people plus a process systems group of 10 looking after the process control side, Tomago Aluminium, like many small organisations, has a policy to squeeze as much value as possible out of systems and hardware before upgrading them. In fact, says IT manager Christine Cameron, it has done this to the extent that it now runs almost entirely on unsupported versions of software (SAP, VMS, Unidata, Oracle).
"Our management hates Microsoft's sales strategy with a vengeance as the push to upgrade to current versions in a business our size [1000 employees] is a significant cost," she says. "They see an upgrade as being something which should be driven by business need [for new functionality] rather than by the suppliers' desire for revenue. Historically, we have chosen to upgrade our MS products on a slower cycle than Microsoft advocate [via their new licensing and software assurance programs] and see that this is a viable choice to make. In the past this caused problems with compatibility of documents across versions, but staying with Office 97 has not caused us any issues to date."
Cameron notes that although this is a very good strategy in the short term, staying with it too long takes away the ability to upgrade, as interlinked product versions get out of sync and the upgrade path disappears. "As we are now facing obsolescence declared by HP on some of our servers, the upgrade process will be more of a new implementation than an upgrade and the cost increases substantially as a result. So, while I do support the view that lack of support by a software vendor is not necessarily an imperative to immediately upgrade, finding the right time to go forward is absolutely crucial," Cameron says.
She says as an IT group, Tomago's team is struggling to upgrade its ageing systems to supported versions and to get support for major new systems investments. To achieve this it is working towards a partnership approach with Pechiney Pacific for joint systems, which it believes will move it forward at a faster rate than it can achieve alone.
Related to this, adds Adams, is the fact that many smaller IT shops recognise that giving out single supplier contracts for any area of the business is just plain stupid. "Why let IBM [in Air New Zealand's case] be the sole supplier of desktops? If you always have at least two suppliers of hardware, software, support services, networking and such you can still maintain standards and limit support issues, but you can always keep them keen with the visibility of competition."
Let Logic Prevail
For the Air New Zealand/Ansett group, each product and section in IT became its own entity and a single IT project might have a budget of $100 million - probably more revenue than Kendall was making 10 years ago. Adams says when project budgets are so big you tend to get little quasi organisations within organisations. That tends to make everything more difficult, as teams worry more about administration than the project itself.
He says smaller IT shops usually better recognise the need to break problems down into more logical units. They also know that no one-size-fits-all policy can meet every need. For instance, Adams acted as quasi IT adviser to tiny Aero Pelican, part of the Ansett/Air New Zealand group, but never tried to apply solutions that suited Kendall (with revenues of $200 million) towards an organisation with a revenue of perhaps $10 million a year the way Ansett did to Kendall.
And he says smaller shops, like the smaller companies they work for, tend to be much more flexible about changing to suit the times. Much more so than at Ansett, IT at Kendall was seen as an integral part of the business by management, particularly once the organisation got its first female CEO.
"She recognised the basically parallel integration between anything IT and the way the business ran; I mean, there were not many parts of the business that IT didn't touch. And when she came on board she recognised this and made my position part of the executive management team," Adams says. "In a smaller organisation it's relatively easier to change those sorts of things. You don't have the organisational politics of this huge structure so they can come in and back those sorts of changes without any huge ramifications down the line."
Smaller organisations are also more resistant to fads and hype, he says, not to mention catch-all policies that take no account of individual realities. When large organisations were jumping on the outsourcing bandwagon, smaller ones were much more likely to be selective about when and where they outsourced. "Outsourcing is a great idea in certain areas and a stupid idea in others," says Adams. "So you don't have a policy of outsourcing everything, you have a policy of outsourcing where it benefits your particular business, and you have a policy of doing it in-house where it suits your particular business.
"When you get to a large organisation the policy seems to override the common sense. So, there's a policy that we're going to outsource all our desktop support, even if there is some specialist internal application that nobody out there who is an outsourcing company can provide. Because it's policy to outsource, they outsource it."
Small Companies, Big Opportunities
Small IT shops may not be able to attract staff on the basis of big and sexy projects, but they can reel them in by stressing the opportunity to develop new technical skills and to work closely with businesspeople. For example, Ash says Blockbuster is very big on cross-training and multiskilling, and finds this can lead to much greater employee satisfaction.
"It actually means the people you've got working for you are more satisfied so they're more challenged by their role and therefore tend to stay," he says. "But secondly what it does when you cross-skill people is that you tend to get fresh eyes on a particular subject or task. They may say: 'I know you do it like this, but why? Maybe we could do it this way.' We've had a number of issues come up where we've actually improved a process by having a fresh set of eyes looking at something. It was working okay before, but there's a better way of doing it."
And smaller shops often know how to save on consultants too. For instance Tomago Aluminium has reduced its consulting costs around SAP by forming a local network of SAP users. "As the Hunter [Valley, NSW] has a large number of manufacturing companies, we have a high degree of synergy in what we are trying to do with an ERP system," Cameron says. "Rather than ring a consultant for chargeable advice, we are trying to leverage off each other's experience. It is quite different to being part of the official SAP user group SAUG, which poses certain limitations of attendance due to our distance from Sydney.
"The group is still in early days and has long way to go to achieve regular information exchange, but is a good step forward," Cameron says.