Tuesday, December 8, 2009

My thoughts on IT Investment Management

Information Technology (IT) spending and IT investment is increasingly becoming a major share of Operational cost and Capital investment in many large organizations. But this money is not always spent prudently and as Gartner research finds out eight out of ten dollars that enterprises spend on IT is “dead money”, which does not create any business value1 . This paper analyses different pain points and improvement opportunities of US Information Technology (IT) spending from an industry internal’s perspective.

Business should drive Technology, Cool Technology should not dominate Business

Over the years so called ‘Cool’ technology has been sold to business by different IT vendors creating redundancies (both data redundancy and systems redundancy) and huge operational and maintenance costs. Many of these IT investments did not create any long term Business value and business people understood this truth too late. Information Technology was a completely new Business story and the orthodox business leaders had no idea about this. They had very few information to ask meaningful business questions to the IT vendors and the vendors were able to easily sell the products with complex jargons and trendy packaging of their services. Also a competition was created among competitors to stay ahead with the latest technology available in the market. People never thought whether the new technology is really needed or whether it can be integrated with the existing IT infrastructure or how costly it will be to manage the new system. The result: Huge maintenance bills to support the ‘legacy’ systems and high reengineering costs to move to new technology.

We have not improved much on this front and still today many of the IT products and services are ‘sold’ which does not create any business value. Following are the improvement areas as experienced by the author:

We need to integrate Business and Technology groups in IT Project planning and execution.
Take serious effort in improving the efficiency and effectiveness of Business Requirement gathering process. Most of the times the Business and Technology groups are not clear of the actual requirements and these grey areas can have catastrophic impact on the successful implementation of any IT projects.
Recruit Tech people in Business groups and Business people in Tech teams. This way both the groups can have better perspectives from their end.
Understand the present IT infrastructure first and decide on new Technology adoption or adding new Services or Systems based on the scope of integration with the existing system and the future business needs. Also plan for production support and maintenance costs for any new developments(typically $1 spent on any new development creates $.60 per year maintenance cost for the life of the system).2
Reuse the existing data, services, systems and infrastructure as much as possible. Focus on system integration activity to reduce redundancy.
Proper Cost benefit analysis (CBA) and Project cost tracking with correct (honest) data is another improvement area for successful IT investment.

Bottom-line: Business should drive Technology investment and not the vice-versa.

Outsource effectively

Research has shown that outsourcing increases the competitiveness and profitability of US corporations. But still the outsourcing practice has not leveraged all the benefits possible from effective outsourcing. Outsourcing, still in many companies is handled in Body shopping mode. We have a client side Business Team (consist of Business Director, Project Managers, Business users and analysts etc.), Client side technology team(Typically consist of Technology Director, Client end Project Manager, Lead Business Systems Analyst and Portfolio Architect), a vendor side onsite team(consist of Vendor end Onsite Project Manager, Business System Analysts, Technical Leads, Test Coordinators, Test Managers etc.) and a offshore team(consist of Developers, Offshore Project Managers, Technical Lead, Independent Test Team etc.). This duplication of similar roles create huge amount of overhead costs and a lot of confusion in communication between different teams. This increases the Total cost of ownership, affects the target dates and the quality of deliverables. Following are the improvement areas as experienced by the author:

Outsource the whole portfolio to a single vendor at least for a year. Make sure your vendor selection process is stringent enough to select only the matured and capable vendors having significant outsourcing experience. Also do an annual appraisal for the vendor and if needed change the vendor by opening a new bidding process. If this sounds too risky choose two vendors(but not more than that)and distribute the Development and Production Support efforts(again don’t mix the efforts, let vendor A do the development and Vendor B do the Production support and not like both A and B doing some part of development and production support). This will ensure that you don’t have complete dependency on a single vendor but at the same time provide the vendors the chance to manage the portfolio in most cost efficient manner and create the needed synergy, technical and domain competence for a sufficient time.
Make sure to minimize the overlapping of similar roles. Most of the times this introduces a lot of communication gap, duplicated and unplanned effort in documentation and most importantly huge overhead and training cost.
Offshore effectively based on the Cost Benefit Analysis and after considering proper Risk-return payoff. US business thinkers have a tendency to think that off shoring reduces costs and thus should always be preferred. The off shoring companies also sell that idea to increase their profit margin. But offshoring is not always profitable. Many a times we add three offshore resources (approximately 3*$30=$90 per hour) for a work which can be easily done by a single onshore resource ($60 per hour). Think about it.

Explore all the business possibilities of IT

Organizations are still underinvested in IT and yet to explore all the epoch-making effects of Technology usage in different business processes. Wal-Mart and Dell has shown how proper technology usage in inventory management can dramatically improve their competitive advantage. Very few organizations are considering similar IT deployment in integrating similar business processes like Human resources management, Finance, Marketing and Operations etc. Following are some of the case studies in scope for future IT deployment:

IT application in HR: Dynamically Allocate tasks and resources across boundaries and time-zones, track employee activity and effort, measure employee performance more objectively from correct data, collect employee aspiration and satisfaction statistics and help employees in matching their work with their potential and thus maximize optimize employee talent management.
IT application in Marketing and Customer relationship management: Many value added services can be added to Internet Banking applications helping customers in planning their money better and at the same time tracking customer spending to promote financial services products to the customers.
Corporate planning and Integrated Return on Investment monitoring: Strategic planning needs integrated view of all the operations, investment data and resource utilization. Integrated Business Intelligence reporting has lot of scope for improvement.

There are lots of such possibilities which are low hanging fruits and should be explored for creating sustainable competitive advantage.

End note:

The observations, as the author feels, are not specific to any client and although this paper analyses only the Banking and Financial Services companies, these may be a general trend in most of the US Fortune 500 companies. We hope that from this TRIZ case study decision makers can find generic solutions on today’s IT investment challenges and can apply those to their specific industry verticals. We also believe that if implemented properly we have significant opportunity of creating business value through IT spending and investment.