Rebalancing IT Spend to Deliver More Business Value

By Sultan J. Khan, Tata Consultancy Services, North America

Optimizing the IT Operating Model, or as I often say, rebalancing IT to drive business value, is a critical initiative at any point in time. However, in the current economic environment, an increased focus on programs that identify substantial cost savings and ultimately lead to improved performance and greater business value have never been more important.It is, therefore, essential for organizations to implement a process that is designed to assess the Current Operating Model (COM), define an appropriate Target Operating Model (TOM), and accelerate the implementation of the TOM to achieve cost reduction and realize increased performance. Current operating model assessments also include evaluating the spend and performance of the IT function against industry best practices.

The ideal framework addresses an organization's need to reduce cost but also extends beyond the goal of simply reducing costs to include streamlining overall operational efficiencies. The framework is fundamentally designed to reduce fixed cost, creating flexibility to increase/decrease overall IT spend driven by market and business needs.

Naturally, each organization is at a different level, therefore the starting point will differ relative to each company's size, strategic goals, etc. But generally, the framework is implemented to help organizations effectively reduce their IT costs, re-balance their budgets to minimize ongoing maintenance cost, free up funds for investment and ensure that the right investments are made in a manner that will provide the most impact on maximizing business value. The actions that make-up this framework are:

• Demand and Portfolio Optimization (Business/IT Alignment) • Infrastructure and Application Rationalization • Strategic Sourcing • Business and IT Process Improvements • Organization Design and Governance

These actions are implemented in stages: the baseline stage, the release funds stage and ultimately, the leverage stage.

The baseline stage is comprised of conducting a current technology health check and cost analysis on all major components of IT, and benchmarking against industry best practices, such as those derived from Forrester, Gartner or MIT's CISR, to name a few. This establishes a clear understanding of where we are today, and identifies initial opportunities for improvement which, in turn, can help release funds to support further transformational efforts, adding true sustainable business value.

Initiating an IT health check helps identify opportunities for improvement by analyzing the health of the major functions in the enterprise, such as risk management, process management, service management, infrastructure management, application and information management, sourcing and vendor governance, program management, IT architecture governance, and strategy and governance.

A critical component of this analysis is to map these functions to five key cost and performance drivers-demand optimization, workforce harmonization, process improvements, systems rationalization and sourcing optimization-so opportunities to improve performance can be identified and an effective solution designed.

A spend analysis helps organizations evaluate their IT spend in terms of business objectives when compared to similar organizations by comparing and contrasting current levels of IT spending with industry standards and competitors.

The next step in the process, the release funds stage, uses the information garnered during the baseline stage to effectively transform the IT organization through a multi-pronged execution strategy along the five major cost and performance drivers defined above.

Some of the big ticket items that can drive significant business value would be IT/business strategy alignment (demand optimization); TOM implementation and leadership development (workforce harmonization); setting IT management governance structures and aligning processes with TOM (process improvement); application and infrastructure rationalization, virtualization and enterprise architecture implementation (systems rationalization) and finally, outsourcing of elements such as application support and development, and infrastructure management (sourcing optimization).

The leverage value stage is about helping CIOs drive greater sustainable business value by making the right investments that will change their businesses in the most impactful way and driving business value through IT. Elements of this stage include:

• Investing in the right areas with high ROI • Technology innovation • IT organization agility and flexibility • Addressing the non-technical dimensions of business solutions

Realistically, obtaining upfront funding for aggressive initiatives such as these will be nearly impossible for most companies. Therefore, it is imperative to think in terms of creating a self-funding engine for this program. In adapting to a multi-stage approach, cost benefits can be realized at each stage of the transition. For example, gaining cost savings by retiring and consolidating applications can provide initial funding for advanced stages of transition.

As initial business benefits are achieved, cumulative benefits can be subsequently attained at an accelerated pace. Pursuing the roadmap with dedicated benchmarks and consistent efforts is critical to the success of the program.

Given the expense constraints many banks are facing today, there should be significant interest and action to embrace an approach which can allow them to lower the fixed cost base, deliver short-term benefits, while positioning them for agility in the future.

Sultan Khan is Head of IT Strategy & Governance for Tata Consultancy Services, North America.