The IT Challenge

The economic crisis continues to strain business operations and long-term plans. CIOs are challenged to deliver measurable value and innovation to the business while keeping costs under control. In this atmosphere, the best IT organizations strike a balance between cost-effectiveness and innovation. It is up to CIOs to drive internal IT efficiencies while enabling transformation in other parts of the business.

IT serves as a core enabler—helping transform other G&A functions while also serving as the spark for innovation in the broader business. Best-practice IT organizations share the following traits:

• Understand where inefficiencies can be rooted out of IT
• Use the scalpel (efficiency reviews) rather than the sword to trim fat methodically
• Appreciate that offshoring and outsourcing are the first steps—rather than the only steps—to reforming the IT cost structure
• Establish a clear path from identifying improvement areas to creating a transformation agenda
• Recognize IT’s role as an enabler for other functions, specifically in terms of the forward-looking business strategy

Leading organizations view IT as an “asset portfolio” rather than as a series of independent projects and services. This portfolio view centers around three areas—operations, business enablement and innovation—and creates a path and customized approach for improving all three. It begins with identifying cost efficiencies in operations, ascertaining effective ways to enhance business capabilities, and then meeting the strategic goals of the organization thru innovation (see figure).

FIGURE: IT strategy framework

This approach is based on the following goals:

• Gaining a deep understanding of IT costs
• Developing a clear path from tactical cost reduction to strategic value
• Creating and communicating a change management plan to educate executives and staff about upcoming changes
• Using well-designed pilot programs to refine the future IT asset portfolio
• Developing capabilities that are aligned with the strategic goals of the company
• Delivering thought leadership and industry experience to drive innovation

Once the portfolio is understood, you can develop strategies to manage cost while maintaining focus and resources to the identified business strategies.

Building Flexibility into IT

IT organizations are often saddled with the “sins” of past business decisions. Legacy applications, ERP systems and the infrastructure required to support them can create significant fixed costs. Outsourcing can reduce costs and introduce flexibility into the IT delivery model. Outsourcing traditional infrastructure functions such as data center, network and help desk to a third party can reduce existing costs by 20 to 25 percent. In functions such as applications development and maintenance, outsourcing enables the flexibility to match resources and capacity with the changing needs of the business—thus turning traditional fixed costs into variable costs. Outsourcing also allows costs to be managed better as changes are made to the application portfolio, as the portfolio begins to stabilize and mature, and as investment dollars become scarce.

IT Business Alignment

In a recent A.T. Kearney study, more than 70 percent of business executives say they believe the success of their business strategies depends on IT.1 Leading IT organizations align closely with their business counterparts through strong communications and governance, thus allowing them to respond quickly to changing business demands— from growth to cost-management.

IT Innovation

Given its involvement in all aspects of a business, IT is in the unique position to enable innovation in all parts of the business. Leading IT organizations are both enablers and full partners in their business. Balancing the investment portfolio, not only on operational excellence activities but also on innovation initiatives, allows IT to reach its full potential.

Assessing IT is a delicate exercise in which inefficiencies are rooted out to clear a path for future investment and push the organization to the next level. Based on work with more than 100 companies, A.T. Kearney has developed a proven approach that eliminates IT inefficiencies while identifying strategic opportunities to increase its value to the company.

Case Study: An Agribusiness

For a $40 billion, global, decentralized agribusiness, we created a future-state vision and transformation plan that led to the creation of an enterprise IT structure. The objective was to maximize the value IT delivers globally while retaining flexibility and partnership at the local level. The company had struggled in the past to bridge company borders and involve multiple stakeholders in the change process, and had little success in rolling out global initiatives.

Our tailored solution included the following:

• Focus the IT organization on identifying demand, managing relationships and implementing strategies locally
• Establish shared services on a global or regional basis to leverage scale, company knowledge and experience
• Develop a launch plan to establish the global IT function quickly, demonstrate measurable change, and provide a business-focused partnership model that manages costs and supports future growth

Our solution was unique, designed for a company that had trouble managing multiple stakeholders at once and had never focused on IT’s ability to work across functions with the business side. The solution struck the right balance—incorporating regional stakeholder needs with global direction and a centralized strategy. We also created global standards in infrastructure services, project management and reporting, and identified more than 15 percent savings from improved efficiency, consolidation and global outsourcing.

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