When Eugene Lau Yuk Mun, senior vice president, DBS Bank, was considering virtualisation as a possibility for reducing IT costs, he realised it was just not feasible. Firstly, his budget did not allow for additional investments. "You've got to invest in the software, and SAN so that it can act as local storage, plus high-powered machines," said Lau, who looks after the bank's infrastructure management services. Then there was the existing mixed OS environment in the bank, which makes running virtual machines difficult and raises the challenge of protectionism from the various business silos.
The bigger difficulty for Lau was that there was already an outsourced contract in place, along with the monthly recurring charges.
"Virtualisation is very attractive, but when it comes to implementation, you've got to face reality-that was our experience,"Lau said.
Jennifer Khow, director, regional infrastructure solution, AS/IT, BASF South East Asia, agreed that working in an outsourced environment made it tougher for IT management to implement virtualisation. "An outsourced environment is very challenging for two reasons," she said.
"Will the vendor be able to pass the savings on to you? And the other is whether you can share hardware with another customer," said Khow.
Adventures in the outsourcing landscape
One approach is to put the pressure on the outsourcing vendor, placing the CIO firmly in the driving seat of the client-vendor relationship.
With the poor business situation, vendors have generally become more flexible than ever in how they can work with current or prospective clients. Many now more than willing to listen and tailor their services to the demands of cost conscious CIOs.
NOL group CIO Wu Choy Peng's method is to work with her IT providers and commit them to split the cost savings from contracts. Wu said she works out deals where the cost of the upfront investment has been amortised, thus avoiding the need for a huge capital expense.
She said one instance of working with the outsourcing vendor to get the best for both parties was when she moved a US-based regional office in California to Arizona. The outsourcing team from Infosys was just as happy to relocate, as it was cheaper to pay staff in Arizona.
"In fact, an outsourcing company has greater capability in moving people around than you can because of your internal HR policies," said Wu.
Better deal, better CIO
She said her outsourcing contract included an annual benchmarking exercise that provides a reality check on the level of services provided. The cost of running this is borne by both parties.
To get a better deal out of her contracts, Wu hires freelance consultants to compare the prices that different vendors are offering.
"Even with contracts that we have already been signed, contracts can be corrected," she said.
Charles Koh, director, IT and regional CIO, Trusted Source, compared the contract situation with outsourcing vendors, to that of a consumer renewing his mobile phone contract for better benefits. "There's nothing wrong with going to the vendor and saying we have to adjust the cost and then seeing what we can get out of this together," he said.
Giving business units more visibility about the IT costs they have incurred is another way of maintaining a realistic expenditure, said Steve Rowe, head of IT, Asia Pacific, LANXESS. Through a concept called service management, his IT teams give the businesses the cost breakdown for every component of each service provided. "So we try to give them visibility, then we work with them to make decisions about what the need is for that application" explained Rowe.
One possible scenario is that IT units might end up being pushed by the businesses to use alternate software or be questioned about costs, warned Noel Low, regional head of IS, Syngenta Asia Pacific.
To mitigate that, Rowe said that IT units were constrained when procuring software.
"It allows us to tell them we're working to get those costs down-here's its entirety, if you don't like the breakdown, we'll do it another way," said Rowe. "But in terms of say, network, if you don't like its cost and could start to get something cheaper off the Internet. But that's a corporate system, step out of that and we'll work to get things more manageable," he added.
The visibility factor, which gives both IT and businesses a clear understanding of spending, is vital to how NOL's Wu does her work. In her organisation, IT expenditure is split into two; the first for running the core business, the second on discretionary items, such as projects.
The businesses are then given clarity and control about the costs of the projects; supporting elements, running costs, and enhancement details. And Wu only has to focus on the contracts and supply.
Most importantly, said Syngenta's Low, is that management of the projects is done from an overall business point of view. "And not just by specific business units, because some of the cost columns that you cut can be spread across multiple initiatives. And so having that visibility is good," he said.
Share the load
To combat cost, Rhodia adopted the concept of shared services, said Kenneth Goh, the director of information systems shared services of Rhodia Asia Pacific.
"This means the lines of business do not own any of the function costs, for example IT, and this has helped us to a large extent, to move up and down to where our businesses are going," he said. "If business A says we want to increase our spend, the appropriate amount of resources will be allocated to these operating expenses of IT globally across the whole of Rhodia."
Going the route of shared services has helped streamline the number of applications; the organisation has gone single-instance worldwide on SAP. The company has standardised its desktops and applications, while seeking to eliminate the hidden costs down to the micro level-it does not allow employees to install software.
"So that is the kind of control we are looking at and this brought down the cost of applications dramatically," said Goh. "We can only do this through the concept of shared services, where one function owns the total cost of another at a global level." Subsequently, the process of governance helps keep things in control through a governance council that has representation from various business units.
Outsource it right
However, Accenture's Scott Halstead, IT strategy & transformation partner and Margaret Darby, the lead for APAC application outsourcing delivery, cautioned CIOs against going overboard with outsourcing.
Darby recalled her experience of having to transition several roles back to the client. "They lost their architectural capability and the service management was done by us," she said, "The way the roles were structured was totally dysfunctional."
Halstead's experience was with a banking client whose IT function did not have enough capability left to manage its vendors. With US$450 million a year to spend on IT, the organisation only had 70 IT people, instead of the ideal 500, to manage some 3000 vendors.
"They had allowed the pedulum swing so far that vendor drove the IT agenda," said Halstead. "The solution is to bring that capability back to manage this situation inhouse. It is not going to work unless there's the right sort of capability under service management, vendor management, as well as ownership of the vendor within the business."
"The onus is on CIOs to show cost savings every year as a way of funding capacity growth that gets results and trims non-discretionary cost management. The blind cutting of heads, X per cent across the board, or just pulling projects, is something that happens as sort of a knee-jerk panic reaction, and that does harm.
"You really have to look at changing the game in the non-discretionary elements of cost reduction, and in particular, from a macro sense. In the applications area, you have a sourcing lever and you have a rationalisation lever.
"And in the ops area, you have a sourcing lever, and a rationalisation lever. And finally, actually the most challenging, is the fifth lever, which is about transforming and retaining the organisation. In particular, we deal with what we call multi-sourced operating models; what sort of skills are a necessity in the organisation, and how do you get from where you used to be to where you need to be?"
"We are seeing a trend in the Asia Pacific, from what started as cost cutting, to an approach that's much more standardised and actually delivers business value over time.
"In terms of our transformational experience, generally it's a minimum three-year journey before the realisation of benefits. In some cases, they take up to five years to mature and fully perform.
"But we're also seeing that our clients have much more of an appetite for talking about this, because all the traditional things that you guys mentioned -the short-term actions, the cutting heads, the labour entourage, either onshore-offshore-isn't enough."
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