IT operational improvement and cost reduction for OEM

Since 2003, the leading automobile manufacturer in Europe has been continuously developing its IT organization. Its key objective is to align IT services and activities with processes that reduce IT costs and increase IT value. Several initiatives have helped the company reduce IT costs of sales to 9 percent. According to benchmarks, the company had joined the ranks of OEMs with the lowest IT costs.

A captive IT-service provider for the company, which runs 25 percent of its IT activities, was recently sold to a global IT-service provider to accelerate process orientation and cost reduction. At the same time, a number of strategic projects have been initiated to increase IT value. Overall, 650 projects are currently under way.

However, the board expects further reduction of IT costs and a considerable increase in the business value of IT to further develop the OEM’s competitiveness.

Challenge
The IT organization needed to develop a way forward, based on the multitude of current projects. A.T. Kearney was engaged to design the next stages of development for reducing IT costs and increasing IT value. The project pursued two primary objectives:

• Additional IT-efficiency gains
  • Further optimization in operations, maintenance and development costs
  • Strengthened IT-supplier management and ongoing competitive prices of IT services from the recently sold captive service provider
  • Optimal organization structure, required employee capabilities, and budget allocation
• Increased value for the OEM through development of IT as a business
  • Strategic levers to increase business value (future IT service and product portfolio), e.g., added value in production and development that is only feasible with IT, new IT-driven company business models
  • Fast access to IT innovation to strengthen company competitiveness
  • Increased employee qualifications in IT to secure competitiveness and significantly increase IT value for the long term

Approach
A.T. Kearney suggested an intensive seven-week program to define the next stages of development for IT. The project team of OEM experts and A.T. Kearney consultants followed a structured approach to deliver robust results. The primary objectives were accomplished through six, sequential steps:

1. Define strategic business and IT guidelines/targets
2. Develop future IT-service portfolio and identify future core IT tasks
3. Run a comprehensive make-or-buy strategy
4. Identify cross-departmental optimization potentials, particularly in IT Demand & Supply Management
5. Evaluate organization options, qualification initiatives, and key performance measures
6. Define high level organization structure, business case, and implementation strategy

Results
The team identified additional IT-efficiency gains of 8 percent, through optimizations in operations (mainly make-or-buy), development, and IT-supplier management.

The team designed a new organization structure with a strong focus on delivering business value by strengthening the internal delivery of existing and new business-critical IT products and services. The new IT collaboration model is based on the following principles:

1. Cross-departmental strategic guidelines ensure an aligned representation when approaching customers rather than an individual approach per department
2. Focus on core tasks enables faster implementation of customer requirements in a targeted way
3. Internal IT-services are oriented towards contributing benefits through a joint product catalog and make-or-buy strategy

At the end of the project, the CIO provided positive appraisal for the A.T. Kearney team: "You have presented a great approach. . . .an excellent elaboration of a long term vision and the steps to make it become reality. . . .all strategic aspects are incorporated and well integrated with operational concepts. . . .I have never seen anything like this before.”