This post is part of the 33 Ways to Amplify Your Profit Quickly.
Technology is an enabler for efficiency. But it can easily become a source of inefficiency when the firm:
buys too many fancy IT toys, and ends up with expensive, not needed IT tools.
inherits many legacy IT systems (e.g., from various previous acquisitions) that it never rationalized.
So, if you want to improve profit, you will need to cut the necessary IT costs, while investing in the new IT costs, which can drive other costs down.
1. Simplify Your IT System
Due to its technical complexity, the IT systems are usually left alone to CIOs. Many business people don’t really understand IT systems; hence the IT costs are not scrutinized like any other cost buckets. For example, I have seen a firm using multiple ERP systems (and paying for multiple systems instead of paying for one). I have also seen cases where the Central Group buys overly high-spec infrastructure/computers that aren't needed by the users. You also often see firms allocating too many IT resources for developing internal software (while cheaper external solutions are available in the market).
Remember: simple can mean cheaper and more effective.
The objectives:
Reduce cost through simplification/optimization of:
IT demand management.
IT applications/software.
IT infrastructure/hardware.
IT organization and workforce.
IT governance and processes.
IT shared services and sourcing.
Steps to execute:
Review existing performances to identify opportunities.
Create an inventory of ongoing IT projects. Assess the impacts and gaps to completion (utilize interviews). Make sure you get inputs from both the IT people and the business people.
Collect data on IT costs, number of Full-Time Employees (FTE), and the demand for IT services (service levels, number of units consumed, applications landscape, IT organization, IT processes, IT governance, and IT outsourcing). When the data is not readily available, use a questionnaire. It would be helpful to split the IT cost by IT functions, e.g.,
IT management.
Apps development.
End-user devices.
Data-center.
Personnel cost.
Hardware cost.
Software cost.
IT outsourcing.
Use benchmark against peers to find opportunities, i.e., calculate the IT Key Performance Indicators (KPIs):
IT costs as % of NSV.
IT costs as % of SG&A.
Apps development cost as % of total IT cost.
Some possible opportunities are:
Reduce the service levels for end-users.
Reduce the hardware service levels/upgrades.
Reduce the number of software licenses.
Establish strict prioritization criteria for ongoing and planned IT projects.
Stop costly maintenance and customization efforts.
Review planned software upgrades.
Stop new hardware purchases.
Evaluate options to extend lifecycle.
Increase server virtualization.
Evaluate the use of cloud IaaS (Infrastructure as a Service) solutions.
Reduce external IT staff.
Ban IT overtime without approval.
Enforce preferred software/hardware solutions.
Optimize FTE intense processes (e.g., for small tasks).
Reduce admin/indirect tasks in IT.
Review ongoing negotiations and contract renewals for cost-saving buckets.
Set the maximum IT costs, i.e., the affordable IT target level for the long-term.
Prepare for the implementation.
Size the savings potential for each opportunity.
Prioritize the opportunities.
Prepare the action plans/detailed planning (including the communication plan and the vendor negotiation plan)
Implement the plans.
2. Reprioritize Your Digital/Technology Projects
To grow your profit, you need to focus on IT projects that generate profits, not costs. For example, instead of having a big cost on an IT support center, which is not generating any savings, it is better to invest in machine learning optimization projects that are generating financial savings.
The objectives:
Understand the current digital maturity level and IT projects.
Review the high-level digital target state.
Develop a streamlined IT project portfolio.
Create the roadmap to the target state.
Steps to execute:
Assess the firm's level of digital maturity (by conducting surveys, interviews, and data gathering):
Whether digital is an integrated part of the Business Strategy.
Whether the core business is digitized.
Whether digital has become the source of new growth.
Whether the digital enablers are in place.
Review all digital projects in the firm.
List all the digital projects (both ongoing and to be launched).
Develop a heatmap of issues and potentials (e.g., high impact, gaps vs. benchmarks, or under-developed areas).
Conduct a workshop to review all the digital projects together.
Reprioritize the projects to create a new project portfolio.
Optimize the portfolio of digital projects for the highest business impacts and fastest delivery time. Focus on the projects that will deliver in the short- or mid-term.
Eliminate the long tail of digital projects. Stop digital projects that have not passed the thresholds or are significantly falling behind the plan.
Redeploy resources from the stopped projects and ensure sufficient resourcing and attention to must-deliver digital projects.
Determine the overall target from the prioritized digital projects.
Prepare and implement the plans.
Update the project targets and milestones.
Review the projects regularly.
To see other ways to improve your profit, check the 33 Ways to Amplify Your Profit Quickly.
Alternatively, to continue exploring winning strategy, click here.
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