If your company's IT costs are blowing out, don't blame the chief information officer. It's all those processes that are just variations on a theme that are costing big bucks, according to two well-credentialled European consultants. One of them is Thomas Volk, chief executive and acting CFO of German multinational business consulting firm IDS Scheer. He is waving the flag for what is often seen as a fuzzy concept - business process management.
Volk loosely defines BPM as "improving and optimising business processes". He says it boils down to the fairly commonsense conclusion that defining, describing and standardising the way things are done throughout an organisation is an easy way to cut costs, and the bigger the change, the better. This should be good news for corporate CIOs, under pressure from all parts of the business to find easy wins.
On the flip side, it means CFOs will be under pressure to ensure that no one is making undue calls on the IT department's time and resources, or worse, asking for bespoke software solutions to organisational problems.
"The statement that IT is too expensive relates directly to the various processes the company allows," Volk says. "The CIO is mostly in the position of being pushed to deliver a specific solution for a particular business unit, and the CIO doesn't have the insight as to why it has to be done that way."
"A lot of IT costs are driven by every business unit thinking it's special," Volk says. "That's all well and good, but when it comes time for a system upgrade, who maintains all the local versions? In implementing finance systems, once you standardise your processes, IT costs reduce tremendously, as there is no need to support all local variations."
Volk says a group's savings for activities such as implementing companywide software upgrades or generating consolidated reports are often proportional to the number of subsidiaries or trading entities the group has.
Volk says that by applying this to his company, which operates in 25 countries, he cut his financial reporting costs by about 50 per cent. "The proscesses we thought had been defined were typically not being executed consistently, particularly in the finance environment," Volk says. "Processes like forecasting or expense reporting can be done 10 different ways by 10 different subsidiaries."
Is this just another way of reducing common sense to a process? Well, Volk points out that BMW's financial services division, accounting for 14 per cent of the whole group's turnover, was able to reduce personnel costs in its dealer service centres by 67 per cent, and administration costs by 58 per cent, after redesigning its sales process.
Charge for IT as a utility
Volk's views are backed up by another European business adviser, Olof Söderblom, chairman and CEO of Compass Management Consulting, which has analysts looking at IT and business operations in 15 countries. His client list includes industry heavyweights such as Volvo and Ericsson and global engineering firm ABB.
"The time has come for CFOs to understand the need for making IT live up to its promise," Söderblom says. "All organisations want to reduce the cost of doing business, and one tool to achieve that is IT."
He says IT should therefore be seen as the utility that it is, with the CIO responsible for delivering IT power at the lowest possible cost with adequate quality, whether it's done in-house or outsourced. "The user of IT is the business - you wouldn't ask your HR department to run a transformation program for your business, so why should IT? It's the line manager's job, it's the whole organisation's job," Söderblom says.
He points out that the CEO and CFO are ultimately the ones responsible for performance. "It's a finance issue, yet the CIO has accepted responsibility for something he cannot deliver, which is business efficiency. [The CIO] cannot deliver on usage levels, the fact that volumes are exploding."
Söderblom argues further that the cost of IT should be viewed entirely differently, especially when volume changes arise not as a result of sudden company growth, but from the introduction of a system that isn't being used properly. Here, unit costs are decreasing, but volumes are rising at an even greater rate, so the total cost of IT is always trending upwards.
Söderblom's argument is that for an IT cost-control strategy to be successful, the IT department has to invoice its services in business terms. "It is a utility and should charge the rest of the business for cost per transaction, cost per client, cost per change, whatever the business metrics that are relevant," he says. Only then will the units see their IT usage in a more relevant context.
© Fairfax Business Media
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.