Why Not Keep IT Simple?
CIO-Connect, November 2005
The best things in life are not only free but simple. Management gurus are always telling us that high performing businesses are the ones that keep things straight-forward and simple. Take 3M for example. This is a company that has a complex and expansive range of products that it sells across the world. And yet it keeps its operational processes simple. It functions on the basis of tightly managed operating units that are standardised across the business. Jack Welch, the former CEO of GE, was telling me the other day that is how he always ran his company.
And so it is with IT systems. Companies that have standard operating systems across all their functions are likely to achieve big cost savings compared to those that don’t. Recent research carried out by the Hackett Group conclusively demonstrates this point. It found that by reducing IT complexity companies can generate substantial savings, including the overall cost of their finance and human resource functions. Companies that fail to do this spend, on average, 30 per cent more on finance operations and 18 per cent on HR than their better performing competitors.
To reduce IT complexity is a major challenge for any CIO. It has to be a tough person that can take on and defeat the arguments of heads of finance and HR. They will inevitably argue they have special operational needs that can only be met by bespoke solutions. They are usually backed-up by specialist vendors who make big bucks from offering consultancy services and IT solutions around clients’ specific functional requirements.
The attitudes of CEO’s also act against the agendas of CIO’s that want to bring about change by rationalising the complexity of IT systems for cost savings and more transparent operational processes. They are more likely to be convinced by their functional heads than by their CIO’s. The latter often have difficulty in convincing the CEO of the tangible benefits of standardising IT processes.
In my experience not enough CIO’s are doing their jobs properly. It is not enough to merely keep the systems running on a day-to-day basis. They should be on tougher performance measures than this. As part of their job description it should be mandatory they demonstrate the value added pay-back of any implementation programmes they oversee.
But how many undertake this research in their businesses? In large companies it is very simple to do comparative studies of the gains derived from IT implementations in different business units. Compare those where changes are introduced with those units that are left alone. This is not rocket science but basic first year university student business studies research.
Over the past decade we have watched companies implement localised system after localised system. The outcome in many companies is IT anarchy with many CIO’s having lost the plot. They have delegated their responsibilities to colleagues with responsibilities for managing systems within different parts of their organisations so they no longer fully grasp what is going on. Twenty years ago it was fashionable to break companies up into strategic business units or profit/cost centres. The intention was to create more customer focussed, entrepreneurial operations. The outcome, however, was often quite the reverse. It lead to the duplication of functions such as HR, finance, etc., as each of the units pursued greater operating autonomy. It meant that for many companies, their overall cost structures went through the roof.
The outcome is that many companies are now re-evaluating these de-centralising strategies and re-asserting tighter controls over previously disaggregated business units. The present mess of excessively diverse IT systems is a result of these earlier corporate strategies. Now is the time, as with other operational processes, to reign in the complexity of different IT systems, to simplify, and to re-assert the control of the CIO at corporate HQ.
© Professor Richard Scase