Wilbert Renkema, Director of Consulting at METRI:
“METRI is and will remain an independent management consultancy organisation. As a trusted advisor, our mission is to enable clients to realise a ‘best in class’ service provision and to offer maximum added value to their business. We do that by providing services in the field of strategic sourcing, strategic governance and benchmarking. With the market knowledge and market data at our disposal, we can offer a unique proposition. Furthermore, these raise our other services to a higher level.”

In order to do this, they need to be able to measure where they stand against enterprises of a similar size and complexity, and against best-price industry norms. One of the questions implicit in benchmarking is whether it is more efficient to support IT in-house or to outsource some or all services. And if IT is already being delivered by an external service provider, are you paying competitive rates and getting a quality service? Benchmarking against up-to-date peer and market data can provide comparisons, indicate where money can be saved and can negotiate with suppliers on the client’s behalf.

Benchmarking projects have tended to focus on various elements of the IT infrastructure such as back office, networks and desktop support, but a new area that is gaining traction is benchmarking applications such as ERP. Given the complexity of most ERP environments, some may say that trying to quantify it is like asking ‘how long is a piece of string?’. However, identifying even small efficiencies can result in substantial savings. Licensing costs alone of a typical SAP implementation can account for up to 20 per cent of the overall ERP budget. Add related infrastructure elements such as database software, networks, storage, hardware and so on and the costs of running an ERP environment can vary widely depending on operational efficiencies, legacy components and interfacing complexities.

In a recent study undertaken in Germany, consultants from METRI compared the cost structures of several external SAP support providers. Before undertaking the study it was necessary to ensure that all of the client enterprise environments had similar levels of enterprise-critical relevance, usage intensity and volume, database size, technical complexity and service levels so that we could make a like-for-like comparison. Where there were differences, these had to be evened out to achieve a fair comparison.

Having set this standard benchmark, measurements were made to identify the range whereby an enterprise and its service provider deviated from the norm. Among other things, the study looked at service provider costs for incident and problem management, user administration and change management. The results revealed that outsourcer costs for the technical application operation ranged from €21,000 to €27,000 a year per SAP module. Given that this study involved only a few of the components that make up an SAP environment, it gives an indication of the magnitude of savings that can be achieved using application benchmarking.

While this case offers a glimpse into outsourcer pricing differentials, a comprehensive best-practice pricing survey must start by looking at a company’s own cost drivers. The most important place to start is to determine how critical the SAP application is to the enterprise as a whole. This question can best be answered by quantifying the consequences of an SAP outage and then weighing up whether the level of mission-criticality justifies the costs of a higher level of service. Since most SAP applications are designated as highly mission-critical they typically involve premium SLAs including 365/24/7 support, which means there is usually very little in the way of cost reductions to be found.

The next cost driver is the range of services to be included in the service provider contract. These range from basic services such as process monitoring, incident resolution and ongoing systems maintenance to job scheduling, capacity management and technical innovation. There is more room to manoeuvre here as some service components may be retained in-house.

The third factor that determines cost is the complexity of the SAP installation. This includes the number of interfaces to other applications, the number of users and the number and distribution of enterprise locations both locally and globally.

Clearly, the more complex the environment and the greater the number of touch points, the higher the support costs. For some multinational firms, up to 70 per cent of their SAP service requirements may involve international locations. Rationalising this into regional service hubs may offer major cost and performance efficiencies but, given the investment in change management, this should be benchmarked first to identify exactly where, how and how much cost efficiency can be gained. Of course, Like any other aspect of IT, application benchmarking is an investment that must have a compelling business case. Our experience shows that an effective application benchmarking project can result in double-digit percentage savings for an enterprise that spends £500,000 or more per annum on ERP support.

• Read the article online (new browser window)

At first glance, the question might sound rather generic, seemingly trodding upon an age-old topic unlikely to unleash a furious debate among the various CIOs, IT professional and other forum members. It’s kind of like asking: Why are there so many potholes on the streets of Massachusetts in February? The answer is that it just kinda happens, you can’t really do much about it, and that’s the way it’ll always be in Massachusetts, though it’s not necessarily that way in other states. (Insert shrug of shoulders.)

Rekko is managing director of METRI, a boutique management consulting firm that works with large European user organisations and system integrators. He’s seen lots of “strong CIOs” and plenty of “weak CIOs” over the years, and this question has proved eternally interesting to him. Which is why he asked it.

“What I can’t fathom is why, particularly in the ‘weak CIO’ scenario, the person ends up reporting to the CFO,” Rekko says via e-mail, in early April. “After all, a COO would be a more logical choice: Running a data-center has more in common with, say, running a plant or other shared services operations, than with finance, accounting and controlling.” He also posed the question because he was curious how a global audience—the CIO Forum members—would react.

In response, a few of the early commenters harangued him about the relevance of this “tired” discussion: Why dredge the topic up again? The virtual conversation could have died there.

But this one had some legs. Several months and more than 200 comments later, the question and answers have proved to be a revealing, protracted and insightful debate about the modern-day CIO reporting structure. Impassioned yet reasonable give-and-take played out, even surprising Rekko a bit.

“I know from my daily practice that the subject is a great conversation starter with CIOs, and so I wasn’t surprised by the quantity of responses, especially because I formulated the question in a provocative way,” Rekko says. “What surprised me was the high quality and polite tone of the conversation: This has not devolved in a shouting match. And over 80 percent of the responses were very insightful, written with craft and well though-out by LinkedIn members with very impressive backgrounds.”

But for all of the discerning discussion and online back-and-forth, one simple, broadly applicable answer was not to be found.

Why the CFO?
The generally accepted account of why CFOs have been installed as IT’s de facto boss is this: IT was forged in finance departments to help with the digitization of accounting functions; thus the majority of “IT spend” in the early days was on financial computing initiatives. It was only logical that that’s where IT was placed on the org chart.

And that’s where IT and its de facto chiefs stayed for decades.

There was also, perhaps not coincidentally, always a little breathing room between CEOs and the expanding and bewildering IT departments. IT executive Scott Brower, commenting in the forum, offered this rationale: “As a support organisation, [IT] was not something that the CEO felt the need to keep close so it made it sense to have real financial stewardship controlling it,” Brewer wrote. “This also created a buffer where the CFO, knowing business, could deliver the necessary message to the CEO rather than some techies speaking in 1’s and 0’s.”

Of course, the CFOs spoke in 1’s and 0’s too—but the gulf between the two departments always seemed vast: balance sheet 1’s and 0’s versus programming code 1’s and 0’s don’t fit together well. But over the years, CEOs wanted constant control over ballooning IT spend. And who better to do that than the Chief Bean Counter?

Several commenters in CIO Forum discussion pointed out this salient fact, however: IT is where it is (still under the CFO at many companies) because that’s where the CEO wants it to be. In other words, don’t blame the “clueless” bean-counter for the reporting assignment, who may not even want the responsibility in the first place. Talk to the head honcho.

Ennis Alvarez, EVP and COO at IT consultancy Brivea, sensibly wrote on the forum that “when the executive team makes the decision to have IT report to the CFO, it is mainly because we (the IT management team) have failed to ‘earn the seat’ at the top by not clarifying the value that IT is contributing to the organisation, nor being clear about where the IT budget is being spent and why that is the best return on that investment.”

A C-Level Exec with No Cache
Since the forum consisted of self-selected IT types, the tenor of the responses to the question—What makes a CFO uniquely qualified to be heading up IT?—can best be summed up this way: absolutely nothing. Other snarky responses included: Why doesn’t the COO or CMO report into the CFO? And then there was a clever flip of the initial query: What makes the CIO uniquely qualified to be heading up finance? (Take that!)

The more practical responses centered around an “it depends” line of thinking: In some organisations, the CIO-to-CFO reporting relationship actually makes sense; in most others, it just doesn’t and never should have. No big surprises there.

But the nagging question that won’t go away any time soon is this: If you are a C-level businessperson in charge of a critical function—you are the Chief Information Officer and have that same “C” title as every other top exec—then why would the CEO not want to mirror the same reporting structure as every other C-level exec?

A few weeks back I interviewed Rudy Puryear, a partner at consultancy Bain and leader of its global IT practice, for a CIO.com article titled: From the CEO: 5 Questions CIOs Need to Answer. The answers to the questions aren’t easy for IT, but critical during the economic recovery.

Puryear was, on the topic of CIO reporting relationships, adamant that CIOs should report to CEOs. “I’m still amazed at the number of organisations where they want to stick the CIO under the CFO because they don’t think it’s the same caliber of business professional that can work with the executive team,” Puryear says. “The CIO ought to be a part of the executive team given the incredible impact IT can and does have, and how intertwined IT and business are today.”

When he consults with executives that are looking to hire a CIO and are planning to have the CIO report to the CFO, Puryear will often ask them: “What major action can you take in this business that doesn’t have IT implications in one form or fashion?”

To Whom Do CIOs Actually Report?
It’s about time we bring in some data to this discussion. So just who are CIOs reporting to today? According to “2010 State of the CIO” survey data, 43 percent of CIOs report to the CEO, and just 19 percent report to the CFO. In addition, 70 percent of the surveyed IT execs claim to have a seat on the business executive management committee.

Looking back over the past five years of “State of the CIO” reporting data, the numbers have been consistent. While CIOs report to CEOs more than any other executive, CIOs have never been able to crack the 50 percent mark.

The dip from 2009 to 2010 is evidence of the downstream effect of the global meltdown and the New Normal in IT: CEOs clamped down on spending and, in some instances, shifted CIO reporting relations to CFOs. Get a grip on that IT budget!

Right now, however, would be as good a time as any for CIOs to shine. Change won’t come easy for those CIOs still pining to report to CEOs, to get the proverbial seat at the table by demonstrating IT value again and again.

But one sees glimpses of CIOs doing it here and there, and also can tap into sound strategies of how to change the conversation from “cost control” to “IT innovation.”

You see it in business-first CIOs such as Stuart McGuigan at CVS Caremark (CVS) or in next-gen CIOs like Stephen Gillett at Starbucks (SBUX). You see it in CIOs who are answering the tough questions from CEOs, who are quantifying IT investment risk, who are removing antiquated IT barriers to enable business innovation and success.

In the end, there’s no one-size-fits-all answer to Don Rekko’s question. But the comments made in the CIO Forum demonstrate that CIOs feel they deserve to report to the CEO—and not the CFO anymore.

When asked if he thinks the CIO should report to the CFO or CEO, Rekko says: “A CIO is like a drummer in a rock band: He’s seldom in the limelight, and the fans mostly notice him when he misses a beat. Nevertheless, he should be on stage. I personally believe the CIO needs to earn a seat at the table and should not report to the CFO. The best way of earning this status is practicing what you preach and being proactive.”

An AHSC is designed to attract world-class research and provide a resource for innovative medical training and best-practice patient care. To facilitate the knowledge collaboration between the AHSC partners, King’s College Hospital recently undertook an independent review of its clinical information management infrastructure and IT services support. The results provide some strategic indicators concerning platform standardisation, data storage and whether or not to outsource some or all of King’s IT services.

King’s College Hospital NHS Foundation Trust in Denmark Hill, South London, is a large and busy teaching hospital. Serving over 700,000 people in the London boroughs of Lambeth and Southwark, it is a centre for clinical and technology innovation in neurosciences, cardiac, liver transplantation and haemato-oncology.

As part of the preliminary work towards supporting the AHSC, King’s has been collaborating with the partners to further develop the integration of clinical services and data-sharing frameworks. King’s reviewed its clinical information management environment and IT infrastructure to ensure it is best positioned to support AHSC requirements.

Benchmarking key performance indicators (KPIs)
In addition, King’s required an IT health check of its IT service teams to confirm that they were delivering best-practice and best-cost support to the Trust’s performance culture. CEO Tim Smart, who joined the Trust in 2008 from British Telecom, brought with him a keen business and organisational perspective based on competitive efficiencies and wanted to see how King’s compared with commercial norms. This was particularly in light of the hospital’s reputation for implementing innovative and highly successful technology without being part of the National Programme for IT (NPfIT).

Says Colin Sweeney, Director of ICT: “I consulted with our Chief Financial Officer and we decided that the best way to achieve this kind of sweeping review was to invite in METRI, a benchmark-based business and IT consultancy, to review our data-sharing strategies, audit our service teams, IT platforms and networking systems, review processes and benchmark cost and performance indices. In addition to comparing these key performance indicators (KPIs) with both peers and market best-practice, our CEO felt it would be useful to compare the cost-efficiencies of inhouse versus outsourced services.”

Data harmonisation
The first recommendation of the report was to establish an integrated network to better enable the partners to work together more quickly, easily and cost-efficiently. Several challenges were identified, including the need for increased standardisation of key clinical information management systems, both internally and across the four AHSC partner sites where appropriate.

Sweeney explains: “If we consider the electronic patient record (EPR), even though both King’s and Guy’s and St Thomas’ are using iSOFT’s Clinical Manager (iCM), we are working with different versions of the application. King’s is scheduled to upgrade in a few months to the same version, iCM 1.4, which will facilitate information sharing. However it isn’t that simple; even with the same version of the same application, each of the Trusts has configured their systems differently to reflect their unique cultures and clinical specialties, so, to some extent each one poses proprietary challenges.”

The challenges of legacy complexity
Another hurdle to data harmonisation, both enterprise-wide and across the four King’s Health Partners locations, is the complexity of King’s legacy technology. Among other things, this features eight different operating systems (including Windows XP, Vista, 2000), various versions of the Microsoft SQL Server and Oracle databases, different interfaces, network configurations and more.

“The good news”, says Sweeney, “is that we have been working closely with our clinicians to integrate clinical systems across the partner sites and we are making progress.”

Data volumes expand
Since the AHSC relies upon a continual stream of enriched medical information, feeding the central repository involves the generation of ever-greater amounts of clinical data. King’s is highly innovative in this respect, having implemented numerous point-of-care data capture systems from electronic white boards on the wards, to mobile devices in the field.

In fact, King’s went live in December 2009 with its latest application, a bed management system that enables the input and access to a range of clinical data, including highlighting abnormal patient test results and infection statuses. In fact, as Sweeney pointed out: “Wards don’t use paper notes anymore; everything is typed into the computer.”

King’s is also implementing a new patient kiosk system that allows patients to scan in their booking letter on arrival and identify changes in their own demographic details, which are then entered into the PAS. The Trust also increasingly uses mobile texting for appointment reminders and Sweeney estimates that over the past year, SMS data volumes have risen by up to 40%.

Cutting costs with virtualisation
This ever increasing amount of data, while an advantage to both clinicians and administrators, carries with it some downstream problems. As the costs of computing power and web-based access to data shrinks, people have got used to the idea that information is virtually free, but it’s not — the more data that is processed, the greater the management costs in everything from data compilation to analysis, access, storage and archiving. The more the data, the more servers needed to store it.

One of the report’s cost-cutting recommendations was server virtualisation, which uses software to automatically rationalise and optimise server space to dramatically reduce data centre costs.

Market-beating KPIs
In addition to strategic guidelines on such things as platform standardisation and server virtualisation, the study revealed that King’s IT services (including the desktop help desk, networking and data centre support teams) exceeded management expectations on the upside.

In most cases, the report found that IT service teams’ productivity was higher than other NHS trusts of a similar size. The service desk’s cost-per-contact was benchmarked at a 47% lower cost than the market average, and the cost-per-managed-server came in at 12% below the benchmark. Yet productivity and internal customer satisfaction showed above-average results.

In terms of outsourcing, when measured against the major external service providers, King’s IT service teams showed positive cost/performance ratios. This led to the recommendation that the Trust should retain service support in-house, at least for the present. So the question of whether or not to outsource is not dismissed — just delayed.

To outsource or not
The question of whether or not to outsource is not as straightforward as it may seem. In addition to matters of control and data security, the main issue is whether or not outsourcing is going to save money. This requires comparing the KPIs of both in-house IT service teams and infrastructure management, and those of external providers on an ‘apples-to-apples’ basis — which itself may be elusive since this requires granular visibility of each service component.

It is also rare that a trust’s IT infrastructure conforms to a single outcome: typically, some service components are best supported in-house, while for others, the business case points to using a service provider (whether on or off-site). However, determining which component falls into which category is no trivial task since each environment is unique. Ultimately it may require independent advice to measure and compare KPIs, since few CIOs have access to the latest market pricing benchmarks and many outsourcers are less than fully transparent about their costs and deliverables.

There is also an inflection-point at which increased activity volumes or infrastructure size suddenly makes outsourcing viable: for King’s, this point of critical mass has not yet been reached. That said, as AHSC collaboration increases, the amount of clinical research data across the AHSC partners expands and managing a growing knowledge repository becomes more complex, the partners may look to new ways for its efficient handling.

• Read the article online (new browser window)

Cloud services can reduce costs by up to 50 percent or more. While there are challenges involved in using the Cloud for mission critical applications, for tasks such as testing and development it offers a flexible environment with significant savings potential.

Setting the Benchmarking Parameters
To establish whether or not cloud services posed a serious alternative to established managed services for high volume, secure business requirements, the study focused on a specific provider – “Amazon Cloud Private” – which provides virtual computing power over a VPN.

To make an ‘like-for-like’ comparison between cloud and traditional managed services, a set of specifications was first defined including parameters for such things as process and infrastructure complexity, flexibility, quality assurance and performance requirements (for example, 99.5 percent+ availability; 24×7 support) which were then mapped to a standard service level agreement (SLA).

Comparing Service Costs
The result of the benchmark project was that, given a comparable set of specifications, cloud-based solutions were found to reduce managed server costs by up to half, and in some cases more. The study reviewed a mid-sized managed server environment from an IT outsourcer offering a standard SLA (including 5×10hrs support) for £320 a month.

A comparison was then made with a similar server provided by Amazon (with a contract period of three years) cost about £220. However this price also included the cost of a broadband Internet connection and assumes the full server capacity is used throughout the entire month on a 24/7 basis – equivalent to a premium+ level SLA with a traditional supplier.

Taking these two additional features into account, the Amazon price was close to 50 percent less than the traditional service provider.

The Cloud’s Downside
However, despite the clear cost advantages, there are some major obstacles to using a virtual server environment. Because cloud-based providers do not offer the same levels of operational and safety procedures as a traditional IT service provider, it is not recommended for mission-critical applications.

In addition, long-term budgeting is hard to plan because Amazon reserves the right to change the prices and terms of its Cloud Services at any time it chooses. For larger companies that require long-term supplier reliability and pricing stability, these particular drawbacks are typically viewed as unacceptable.

There are also data security issues. This is always a concern using an open channel like the Internet, and now it is doubly so in a virtual server environment that cannot be locally controlled. However, there is a solution.

If Amazon adopts a policy of retaining customer data for seven years mandated for data centres in the EU (as Microsoft has done with Azure), and if clients are prepared to accept the higher security risk, then there is a very strong case for using cloud solutions. Moreover, the data risk can be reduced significantly by using dedicated network connections rather than the internet – an option that would not necessarily entail significant additional cost.

Great for Testing
Fortunately, not everything is mission critical. The study identified that up to 25 percent of the computing capacity of a typical large organisation includes non-critical applications as software development and testing. For this type of activity, a cloud service is ideal. By relocating these applications to the cloud, a company can easily reduce the costs for their IT server infrastructure by around 15 percent without sacrificing any quality.

Of course, in addition to Amazon, there are an increasing number of virtual hosting companies with similar cloud offerings on the market. In the future, traditional solution providers may well see that survival lay in forging partnerships with organisations like Amazon.

By providing economies of scale, standardisation and flexible features like online booking and administration infrastructure services, a player like Amazon can provide costs structures that are orders of magnitude more attractive than legacy IT services providers, while harnessing the latter’s ability to high levels of service quality and reliability.

• Read the article online (new browser window)

Public services, including healthcare, local authorities and other government organisations, are under pressure to slash operational costs by up to 30 per cent. In many cases CIOs and procurement officers are facing a moratorium on new investment, with existing programmes being delayed or cancelled. Many of these, ironically, are strategic, such as regional information and shared service hubs, designed to deliver greater efficiencies and cost savings.

For those IT projects earmarked to proceed, every step of the procurement process is under the microscope to drive down costs, with strong-arm tactics often being used on solution providers and outsourcers to drive down costs.

Outsourcers can always find ways to save if pushed. And many argue that passing on the pain to them is only fair since they have had things their way for a long time. The danger is that by pushing suppliers into a “utility” or commodity-level contract, this may drive out the value. That is, if pushed too far, they will stop doing the extra goodwill value-adds needed to ensure a best practice service, or will substitute the A team for lesser-experienced and less knowledgeable staff. This in turn increases risk of error that may have greater cost and reputation implications than the money saved.

Much of METRI UK’s work is in helping CIOs identify where cuts can be made, from the front to back office and beyond. It is a fallacy to think a whole IT environment must be handled either internally or externally. Some services are more cost efficient managed inhouse, others are best handed to an outsourced centre of excellence.

Where outsourcing is the better option, supplier contracts must be negotiated carefully. Each service should be itemised, service levels should be transparent and safeguard the customer from additional downstream cost creep. Unnecessary services, or higher-than-required service levels, are often responsible for inflated costs. The key is to identify those IT services that need premium support and those that do not.

One area where IT costs are rising dramatically is data storage and management. Because of ever-cheaper computing power, government departments are generating more information than ever, particularly in the area of CRM. However, all this information needs sorting, integrating, analysing, sharing, storing and retrieving so the more we generate, and the more we do with it in terms of analytics and reports, the higher the processing costs. Given increased volumes and the regulatory need for public services to retain records for seven years, data storage costs threaten to explode. Whether handled inhouse or externally, data management is an area where finding inexpensive alternatives will have an increasing impact on IT savings.

A mandate to reduce IT budgets typically results in suspending new investment or freezing projects mid-implementation. While this may reduce short-term pressure on the bottom line, it can have unintended consequences. There can be substantial additional costs to restarting a mothballed programme at a later date. Just as costly, but more difficult to quantify, are the lost opportunity costs of not having had an application in production that might have paid for itself early by delivering extra operational efficiencies or supporting new revenue streams.

• Read the article online (new browser window)

In many cases, chief information officers and procurement officers are facing a moratorium on new investment, with existing programmes being cancelled, frozen, reviewed or delayed. Many of these, ironically, are strategic, such as regional information and shared service hubs, designed to deliver greater efficiencies and cost savings.

For those IT projects earmarked to proceed, every step of the procurement process is under the microscope, with strong-arm tactics being used on solution providers and outsourcers to drive down costs.

And there are often internal conflicts. The finance director will say: “You have to find savings of up to one-third of your budget” while the CIO says: “I have two more years on my outsourcer contracts and can’t afford to reduce any of these services.” The solution? To hand the problem over to the outsourcing suppliers and to expect them to find ways to trim their costs without reducing service levels.

How far can you squeeze suppliers?
Of course, outsourcers can always find ways to save costs if pushed. And many would argue that passing the pain onto outsourcers is only fair, since they’ve had things their way for a long time. Yet there is a danger that pushing suppliers into a ‘utility’ or commodity-level contract may drive out the value.

That is, if they are pushed too far, they will stop doing the extra good-will, value-adds that are needed to ensure a best practice service and ‘work-to-rule’. Or they will substitute the ‘A Team’ for less-experienced and less knowledgeable staff. That, in turn, increases risk of error – which may have greater cost and reputation implications than the money saved.

Negotiating outsource contracts
Much of our work is assisting CIOs to identify where cuts can be made across the trust’s IT services, from the front to the back office and out into the community. This is done by analysing cost and productivity ratios, legacy system complexity, levels of operational maturity, rationalising and shared services and comparing in-house and outsourcing costs for best value in any given component.

It is a fallacy to think a whole IT environment must be handled either internally or externally – some services are more cost-efficient managed in-house, while others are best handed over to an outsourced centre of excellence.

Where outsourcing is the better option, supplier contracts must be negotiated carefully. Each service should be itemised, service levels should be transparent and safeguards the customer from additional downstream ‘cost creep’.

Unnecessary services, or higher-than-required service levels, are often responsible for inflated costs. For example, a ‘platinum-level’ 24/7 service may have been contracted, where a standard 5/10 (weekday/10 hours a day) service would suffice.

The key is to identify those IT services that need premium support and those that don’t. Utility back-office administration may only require basic support, while an ERP (Enterprise Resource Planning) that requires complex integration and data customisation may need premium professional services and mission-critical support.

Data management: the true costs
One area where IT costs are rising dramatically is in data storage and management. Government departments are generating ever more information, because of ever cheaper computing power and the increased ability to capture point-of-service information (in the NHS, this comes from the use of new devices such as whiteboards in theatre or mobile devices in the community).

This information is regarded as more or less free. However, all this information needs sorting, integrating, analysing, sharing, storing and retrieving. So the more we generate, and the more we do with it in terms of analytics and reports, the higher the processing costs.

Given the increased volumes and the regulatory need for public services to retain records for seven years, data storage costs threaten to explode. Whether handled in or out-of-house, data management is an area where finding inexpensive alternatives will have in increasing impact on IT savings.

Lost opportunity costs
A mandate to reduce healthcare IT budgets typically results in suspending new investment or freezing projects in mid-implementation. While this may reduce short-term pressure on the bottom-line, it can have unintended consequences.

There can be substantial additional costs to re-starting a mothballed programme at a later date. There will be new regulations to comply with, technology will have advanced and so a partially-installed system will have to be reconfigured to comply with these updates. This cost will most probably involve many man-days of expensive professional integration and data transformation services, not to mention higher overall labour costs.

The worst case is that the half-implemented project may no longer be relevant, which means all capital and implementation must be written off. Just as costly, but more difficult to quantify, are the lost opportunity costs of not having had an application in production that might have paid for itself early by delivering extra operational efficiencies or supporting better patient services.

• Read the article online (new browser window)

Social networking is also a powerful and cost-efficient means of transmitting corporate information internally and encouraging the collaboration of ideas – especially in a virtual or multi-site environment. Social networking sites are also an important recruitment tool, both to attract new candidates, research potential employees prior to hiring and for extending peer support once recruited.

The risks as well as the benefits are significant. The ubiquity and the democratic nature of social networking makes it difficult for organisations to control their corporate messaging – at best a casual comment from a staffer may cause embarrassment. At worst it may lead to legal action or competitive exposure, with both reputation and cost repercussions. Even with corporate governance or non-disclosure rules in place, they are notoriously difficult to enforce.

There is also the issue of how to ensure that employees are not spending disproportionate time on the ’social’ side of social networking, as well as the additional IT cost of supporting the network traffic. Both of these elements are difficult to monitor without creating a negative work environment, although steps can be taken to retain control by periodically measuring individual and team cost/performance ratios through benchmarking analysis.

As we begin a new decade it has gone beyond the question of whether or not the benefits of social networking outweigh the risks. It is now a fact of life. The challenge is to find ways of optimising the opportunities it presents rather than focusing on the threats.

• Read the article online (new browser window)

Public services, including healthcare, local authorities and other government organisations, are under pressure to slash operational costs by up to 30 per cent. In many cases CIOs and procurement officers are facing a moratorium on new investment with existing programmes being delayed or cancelled, frozen or reviewed. Many of these, ironically, are strategic, such as regional information and shared service hubs, designed to deliver greater efficiencies and cost savings.

For those IT projects earmarked to proceed, every step of the procurement process is under the microscope to drive down costs, with strong-arm tactics often being used on service providers and outsourcers to drive down costs.

And there are often internal conflicts. The CFO will say, “You have to find savings of up to one-third of your budget,” while the CIO says, “I have two more years on my outsourcer contracts and can’t afford to reduce any of these services.” The answer? To hand the problem over to the outsourcing suppliers to find ways to trim their costs without reducing service levels.

How far can you squeeze suppliers?
Of course outsourcers can always find ways to save if pushed. And many argue that passing on the pain to them is only fair since they’ve had things their way for a long time. The danger is that by pushing suppliers into a ‘utility’ or commodity-level contract, this may drive out the value.

That is, if pushed too far they will stop doing the extra goodwill value-adds needed to ensure a best practice service and only ‘work to rule’ – or will substitute the A Team for lesser-experienced and less knowledgeable staff. This in turn increases risk of error that may have greater cost and reputation implications than the money saved.

Negotiating outsourcing contracts
So how can CIOs identify where cuts can be made across IT services, from the front-to-back office and beyond? This is done by analysing cost and productivity ratios, legacy system complexity, levels of operational maturity, rationalising and shared services and comparing in-house and outsourcing costs for best value in any given component.

It is a fallacy to think a whole IT environment must be handled either internally or externally – some services are more cost-efficient managed in-house, while others are best handed over to an outsourced centre of excellence.

Where outsourcing is the better option, supplier contracts must be negotiated carefully. Each service should be itemised, service levels should be transparent and safeguard the customer from additional downstream ‘cost creep’.

Unnecessary services, or higher-than-required service levels, are often responsible for inflated costs. For example, a platinum-level 24/7 service option may have been contracted to where a standard 5×10 service (weekday/10 hours) would suffice.

The key is to identify those IT services that need premium support and those that don’t. Utility back-office administration may only require basic support, while an enterprise resource planning system that requires complex integration and data customisation may need premium professional services and mission-critical support.

Data management: The true costs
One area where IT costs are rising dramatically is in data storage and management. Because of ever-cheaper computing power, government departments are generating ever more information, particular in the area of CRM and ‘know thy customer’ ID and profiling applications for cross-service administration.

This data that is regarded as more or less free. However all this information needs sorting, integrating, analysing, sharing, storing and retrieving. Thus the more data we generate, and the more we do with it in terms of analytics and reports, the higher the processing costs.

Given increased volumes and the regulatory need for public services to retain records for seven years, data storage costs threaten to explode. Whether handled in or out-of-house, using virtualisation, cloud computing or other technology, data storage and management is an area where finding inexpensive alternatives will have an increasing impact on IT savings.

Lost opportunity costs
A mandate to reduce IT budgets typically results in suspending new investment or freezing projects in mid-implementation. While this may reduce short-term pressure on the bottom-line, it can have unintended consequences.

It can add substantial costs to re-starting a mothballed programme at a later date. At that point there may be new regulations to comply with, technology will have advanced and so a partially-installed system will have to be reconfigured to comply with these updates. This cost will most probably involve many man-days of expensive professional integration and data transformation services, not to mention higher overall labour costs.

The worst case is that the half-implemented project may no longer be relevant, which means all capital and implementation costs already spent on it must be written off. Just as costly, but more difficult to quantify, are the lost opportunity costs of not having had an application in production that might have paid for itself early by delivering extra operational efficiencies or supporting new revenue streams.

• Read the article online (new browser window)

One of the areas within this is how the country is addressing the development of software applications that underpin both public and private sector organisations and to what degree internationally recognised business process standards such as CMMI (Capability Maturity Model Integration) are being embraced by CIOs.

Like India before it, where most application development suppliers now boast a high level of CMMI compliance, the Chinese government has mandated that its own version of CMMI, called GJB5000. This has been developed by the military and is being adopted initially within the public sector, but will eventually be used by commercial organisations.

Indeed, in order to win government contracts, suppliers are being encouraged to become CMMI certified with financial inducements to reach increased levels. At the moment there are not particular rating targets to achieve a particular CMMI level but the trend is in this direction.

The same adherence to a single standardised best practice methodology is not yet present within the business community at large however, and this remains a challenge.

The CIOs of China’s multinationals, particularly within financial services and telecommunications, are pioneering CMMI-style standards because they can see the long-term benefits of standardisation including integrated information flows and automated processes, yet even here there is still a steep learning curve.

One of the reasons why the adoption of an international development standard is slow to gain traction is an historical fondness for the Delphi approach, a consensus-led project development methodology popular some years ago in developed markets but which has more recently been somewhat overshadowed by quantitative, measurable approaches suggested by the CMMI.

This conjures up a group of experts in a room – the CIO, CFO, COO and other stakeholders – sitting around a table hammering out IT project plans and business processes to be implemented within their company.

One reason this approach is attractive is because many organisations like to feel they have a unique environment that requires a unique solution. The problem is that the idea of ‘unique’ and ‘standardised’ are diametrically opposed.

Not only is the Delphi approach expensive in terms of man-hours, it inevitably represents a collection of opinions and such a personalised solution proposes major challenges if the team who designed it leave the company and are no longer able to maintain or drive it forward. Even if it based on a standardised approach, the results from this kind of informal collaboration can easily be overturned by the CEO.

For all these reasons we advocate to our CIO clients in China – typically multinational banks, telecommunications and outsourcing companies – an industry standard knowledge base that ‘cans’ the experience of many to provide a matrix of decision-making data on costs, time projections, etc. for complex IT projects.

The Chinese government recognises the long-term implications of implementing best practice industry standard business and operational procedures, which is why it has mandated the adoption of CMMI. There is much as stake. Optimum process efficiencies require conformance to a single, universally accepted way of doing things – a fact that is true in any market or organisational environment.

However, in China’s case, there is also the issue of economies of scale. Many Chinese companies are huge. China Mobile, as an example, has some 250 million customers, which is greater than the total population of the USA. By contrast ATT Wireless has 50 million customers. This means that by applying industry standard processes, these behemoths can achieve immense economies of scale.

It is interesting to compare India with China, given that India is at a different point on the timeline of a similar journey. Over the past ten years in India a significant investment has been made in gaining CMMI credentials and today there are very few IT development companies that would claim to have achieved less than CMMI 4 or 5.

In China things are just ramping up. Outsourcing organisations are becoming common but are developing according to a different model. In India there are a handful of very large (100,000 + employees) outsourcers including Infosys, Wipro, Tata, etc. which have built up around massive cities like Bangalore within a mainly agrarian society.

In China, because things are just starting, there are only a few outsourcers that have tens of thousands of employees or more. Rather, the trend is for a growing number of small segmented players that serve a widespread and rapidly growing network of commercial centres across numerous industries.

And unlike India, China’s internal market is so large that outsourcers need never look outside China’s borders to find business opportunities – a fact that makes the adoption of international standards an additional challenge.

That said, the country and it’s IT fraternity is committed to joining the international community at the leading-edge business and technology development. All government agencies must have achieved CMMI-level 2 by 1012 and everyone, including commercial sector, must be CMMI-level 3 by 2015. A tall order perhaps, but as the rest of the world is witnessing, China is making quantum strides in every area of endeavour.

• Read the article online (new browser window)