Meeting notes: 26 May 2004

Can you get more IT for less money? That was the challenge answered at last month's Computer Weekly 500 Club meeting by two IT...

Can you get more IT for less money? That was the challenge answered at last month's Computer Weekly 500 Club meeting by two IT directors - Rod Matthews, head of Information Society Technologies at Knowsley Metropolitan Borough and Owen Williams, head of IT at property company Knight Frank.

Knowsley MBC

For Matthews, "There is a whole range of issues about how you construct a programme [that has any chance of getting more IT for less money]," he says.

“To achieve the most economic programme, you must first know what the programme is, what is expected, and what is possible before then negotiating the best schedule with those affected.”

In an industry that has more must-do’s than like-to-do’s cutting out waste is essential. Any IT manager's focus should include proper planning and effective resourcing as well as building trust through demonstrable excellence in management.

As a large local authority Matthews is faced with a complex mix of IT - and a complex mix of demands made of IT.

"We have a broad range of competing demands and legislative targets," he says. "Some of which are clearly understood, and planned some time in advance and some which may be ambiguous or, despite consultation and visioning, are not."

He also acknowledges that to achieve the wide range of unprecedented development that his department requires he must ensure that he is not following supplier agendas.

"Sales-led expectations can depend more on the excellence of the salesmen than the excellence of their products in our context, and those sales-led expectations may be either over-exuberant or, in fact, too constrained.

"Some sales people will sell a corporate and even multi-agency vision, often where there is no precedent or there are barriers to fulfilment," says Matthews.

"Conversely some may attempt to sell a departmentalised component that has little concept or preparation of the client, let alone the system in a longer, wider vision.

"It is important therefore to be clear where you see your organisation in the future, and to have a detailed understanding of the interrelation of all the components of your future, before you start to direct sales people with your specification."

As ever, it is critical to get a grip on the future if you want to get a grip on the present, though that is not always easy, says Matthews.

"It is easy to suffer from indistinct long-term planning and end up with a narrow, short-term focus, so building a vision programme of five to 10 years is important. Otherwise you end up doing sticking-plaster technology which will almost certainly come back to haunt you in costly and frustrating [to the customer and the provider] remedial work," he says.

But IT strategy is led - as it must be - by business strategy.

"If [business] strategy is repeatedly changed, then you just jump from strategy to strategy – Knowsley has always been focused on social inclusion, but like others has had to adapt to prioritise meeting the government's 100% electronic service delivery (ESD) target, before we return to strategies that are perhaps more applicable to our borough.

"Managing the change from strategy to strategy, redefining priorities and targets and building the best foundations for the combined strategies absorbs a good deal of effort," Matthews says.

Local authorities are also highly subject to central government-imposed changes over which they will have no control. The deadline of delivering services electronically by the end of 2005 is one such imposed change, plus, another intangible still in debate, is whether regional government will get off the ground.

If so, says Matthews, "whether we end up in, say, a northwest region running up to Cumbria, or a north central region running east-west through Lancashire and Yorkshire, would require different structures and a focus on building different relationships."

Moreover, there are also issues of local authority collegiate government, where for economies of scale, and perhaps for the work from failing authorities, certain local authorities may become shared "centres of excellence" providing a particular service to many authorities, such as call centres or housing benefit.

"All this has to go into our strategic planning," says Matthews. Particularly with regional government and collegiate government there are no certain answers as yet. Each of these potential changes will require further precedent and legislation to allow for the potential redistribution of tasks - and funding - which means that something as crucial as forward purchasing can become very risky.

Given the proposed legislative changes, he says, "If I bought a system that had a 10-year payback period then I would have to think extremely carefully about it - and if I was paying with borrowed money then I would have to be even more careful."

As ever, uncertainty will have to be paid for, and lack of control has cost implications. But within the remit of what IT can control, Matthews has a whole raft of target cost areas where he can focus on getting the most IT for the least money.

Skills: Like most IT organisations, Knowsley has a continual need to update its IT skills. But some skills are not needed all the time, or in the same quantities all the time, so over-staffing would be costly and wasteful.

"We get round this by having a bodyshop contract - we use an on-demand IT skills supplier to sell us the [extra] skills we need as and when," says Matthews.

Consumables:  "The cost of consumables can be high," says Matthews. "Until we stepped in with a maximising technology approach, and ongoing advice on methods and comparative costs, some departments had accumulated more printers than people. Printing out absorbs a tremendous amount of money, so we encourage users to read from the screen, and do away with their printers."

But, he says, weaning users off printing everything out is "very difficult".

"However, because this is a cultural, efficiency strategy, it has to be co-owned by the IT people [through providing effective alternatives], the finance managers, but most importantly by the users themselves."

IT procurement:  "We have to look at our own efficiencies," says Matthews. "How do we commission services, what is our cost of procurement? The later you procure the more it costs. What are our service delivery options?

"There is no point trying to deliver some things in-house, it would be pointless and expensive, so, for example, our wide area network team is bought in, and we get a higher standard from a market expert at a lower cost rather than keeping it as an in-house service."

But whatever savings, managed services and tactical outsourcing can bring, remember, says Matthews, that you will need to do "very, very good at relationship management - that is a very important skill to us".

But overarching all the individual areas of focus is one abiding principle, says Matthews. The essential skill is in knowing what your costs are where they are and when they are - knowing what each activity costs, and why.

"It is all about process mapping and costing - understanding where the costs fall," he says. "We have to be clear where our labour is going and what service or user it is attributed to. For example, we have to know what it costs to run e-mail or a website, and it is important for users to know and trust the base-line costs before they choose whether they want a Mondeo or a Roll-Royce service, do they want to pay more and get more, or pay less and get less?"

Measuring IT costs accurately, in detail, including, crucially, measuring the amount of time IT staff spent on activities and users, was highly revealing, says Matthews.

"When we undertook our fundamental financial review we found we had a legacy of services being added to our portfolio having been pilots, and without looking back at how we were funded. It turned out that we were, for a couple of years, overcharging for some services, and undercharging for others.

“We were making a disproportionate charge for web browsing, for example, the cost of which then inhibited the departments from allowing their staff to use the service and then we found we were undercharging for using the voice and data networks."

"Correcting this into proper activity-based costing, and breaking this down into charges based on use, has been one of the key milestones in building the trust in us as managers whose methods our customer recognise, and not some other species."

"By looking at what our IT staff were doing we got an astonishing amount of data," says Matthews. "We found staff were delivering 20% more activity that they were being paid for - we were doing a tremendous amount of work for users for free.

“Time recording was pivotal to give us an explicit understand of what we are doing for each user, and provided a meaningful justification for the training and capacity-building in certain areas of our fast moving business."

Benchmarking also helps Knowsley ensure that its IT costs are healthy and comparable.

"We have a number of benchmarking processes," says Matthews, "including those from Socitm, which define 22 key performance indicators, such as response time and percentage uptime, and we also use the European Forum for Quality Management and Information Technology Infrastructure Library (ITIL) models which are a tremendous team building experience - as well as periodic reviews from local government best value reviews, and external consultancy."

"These demonstrate our ability on a level playing field with any other organisation (EFQM), any other IT organisation (ITIL) and any other public sector IT teams (Socitm). This might appear belt and braces, but we have converged these into one single performance programme, so the costs of providing evidence are manageable.

"The effect is significant in the trust that has come as a result of being able to see the performance and quality for cost in comparison against that of others."

IT costs in large, complex organisations, however, even when well measured and compared, do not always fall into neat, clearly defined silos, Matthews says.

"We have to understand where costs cross boundaries - particularly across budget boundaries - and when they change because of, say, new technology, or new ways of recovering costs when IT is introduced," he says.

"Seeing where costs cross boundaries can be key to what is, in effect, process reengineering. Knowsley’s customer relationship management (CRM) programme is a prime example of this, where the costs of the customer contact centre are affected by CRM, but actually reduce the costs of the benefits service.

"Thus the customer contact centre should charge less to the benefits service, and the benefits services should offer up the savings. For both services, then our recent work proves that their costs would have been reduced and their efficiency at very least maintained - ie, we would be providing the same [level of service] with less [cost]."

The search for broader synergies and ever greater efficiencies is on-going.

"We are looking at business information sharing upstream and downstream," he says. "Local authorities deliver so many services, each of which can be kicked off by a different user department, but which often leads to another service being invoked, so business information sharing will show us what demand is coming down the line.

“We want to be able to intervene at a lower cost of service, by accurately predicting trends of usage. Tracking trends, displacement of effort and migration is therefore important, to ensure that the departments involved are neither starved nor over funded."

"Knowsley is a pioneer - we are doing things that have not been done before. To be this we have to have the right vision. Plus, to afford the entrepreneurship and a carefully reasoned and risk managed approach to funding the programmes, we have to squeeze out as much cost as possible by right sourcing, cutting waste and ensuring that systems do what they say on the box."

Knight Frank

Knight Frank might be a global property company operating in 25 countries with 9,000 staff and 40 offices in the UK alone, but it is not a centralised organisation, rather, a set of "loosely connected fiefdoms", says head of IT Owen Williams.

"In my previous company there was a central IT budget and a central strategy, which works well if there is a uniform, homogenous corporate structure," he says.

Recognising, therefore, that while "a homogenous organisation can have a high allocation of costs, a heterogeneous organisation needs a high level of direct costs, but most organisations are a mix of both so you need to balance between allocated and direct costs", Williams supports a variable cost recovery mechanism for IT at Knight Frank.

"Controlling IT costs and values has to be achieved within the organisational culture, so we have a mix of direct costs charged to the business profit centres incurring them, and allocated costs for the centrally managed IT services, the cost of which is divided up globally, depending on [each country's] turnover, and nationally, depending on the number of people consuming that service," says Williams.

Overall, "we have a layered IT structure - global, regional, national, division and department, and there may be strategies at each level. At each level we have to think about the business requirements, the technology they require, how the technology is managed and how the IT costs are recovered?"

"We have to balance between keeping IT operating costs low - paying less for IT - and delivering more business benefit to the company."

Williams also has a varied community of IT users, as well as a geographically widespread one.

"The commercial property division, for example, manages the property assets for organisations such as pension funds, so it is effectively a money management process, with a high level of transactions, which requires a structured system with well developed processes, and a high degree of business continuity.

"By contrast, our rural property consultancy has quite different IT demands - one of which is for mapping tools which can show field gradients and yields. Even within residential sales there is a wide variety of markets - in Birmingham we sell flats from £130,000, whereas in Northants we are currently selling a grade one listed building, complete with village and local businesses, for £50m."

One common factor, however, believes Williams, is that, whatever the line of business, "business does not like IT costs allocated to them, so it is important for us to explain what we are delivering, and to benchmark our service levels so that users understand and accept the value for money for the services being delivered."

"We approach benchmarking in a mixed way. We study published benchmarks from analysts such as Gartner, and we also belong to the property IT directors' forum. The forum has a benchmarking activity with a mix of formal and informal metrics which provide information on metrics such as support numbers and help desk call volumes and so on.

“However, one limitation is that we are all different types of organisations - only two are global, commercial and residential companies like ourselves - so comparisons always have to be subject to some interpretation.”

Williams runs IT with the following objectives:

• To provide operational IT with the greatest efficiency and least cost against a defined service level. "For the bread-and-butter, commodity services, such as break/fix, we use outsourcers to benefit from their economies of scale."

• To ensure suppliers deliver "year-on-year cost reduction, which is built into their contract," says Williams. “If we can do year-on-year cost reduction, so should they.”

• To provide justified change control. "Not all change requests are reasonable," he says. Users need to understand what a requested change will cost, so they make a business-based decision on whether or not they want to pay for it. Remember, change requests can legitimately be rejected.

• To provide IT that delivers competitive advantage for business development. "Business is looking for competitive advantage, and IT that is more powerful, and costs less, and to meet that need we in IT need to speak the language of business."

• To manage IT staff costs effectively. "We recharge staff costs where IT staff time is consumed, so we record time spent on projects, and recover this at cost from the consuming business unit," says Williams. "We also recover our IT overheads nationally as a contribution per head which is defined each year."  For the past three years the cost per head has steadily decreased.

"Because we charge users at cost, we can be cheaper than if they buy IT from outside suppliers [which have to make a profit]. For example, some years ago we outsourced our website, but we have brought it back in, built it in-house and now it is cheaper, more flexible and better all round - and I can reallocate the web staff resources when they are not needed to work on the website because the skills they have acquired are reusable for other work which delivers synergistic benefit to the company."

"Although we always cover our base costs [in how much we charge to users], if we find we have made a surplus we will rebate to users, or use our surplus to undertake national or global projects for our executive board that were not initially thought to be do-able [within the budget], so we can deliver 'extra' IT without having to increase the allocated cost.

"Some departments, such as residential sales, keep their rebates as a 'credit balance' to spend on more IT later, and some, like commercial property, take theirs to use elsewhere for non-IT purposes. This flexible approach is a good cultural fit for our organisation.”

From his experience Williams strongly recommends undertaking time-recording activity across all aspects of IT's delivery to business, from new development projects to on-going support.

"It is a powerful mechanism to enable you to see how much time and effort you are expending, and where. For example, we were surprised how much time and effort goes into support activities," says Williams.

"I was stunned to see how much time we spent on administrative processes. Things like order processing, invoicing and asset management all take more time than perhaps they sould."

Time recording can be an effective way of showing that end-user training is worthwhile.

"We do not charge users for training them on using their IT systems," says Williams, "because trained users use their systems better and therefore need less support."

Time recording also highlights different usages and expectations amongst different user communities.

"Commercial property users are clear about defining their requirements with us, whereas residential users need more help defining their requirements, and that is something we would not have been able to quantify without measuring it," he says.

Applying time recording to projects also graphically shows how much change requirements can cost, he says.

"We now measure ongoing project support costs and the ongoing change control budget has to be justified by the person accountable for the project," says Williams.

Overall, time recording has shown that, "Around 60% of IT efforts go on maintaining the status quo and keeping business-as-usual going, and around 40% goes on new business development activity,” Willisams says.

“My objective is to increase the latter percentage and reduce the former by increasing the efficiency and thereby reducing the cost of providing operational support. Ultimately delivering more value for money from the firm's IT spend.

"We have found that by creating efficiencies in business and IT services, and ploughing the saving back into business development projects has created much more acceptance of IT by business," says Williams.

"In 2002-2003 we cut IT costs by 35%, and the following year, 2003-2004, by a further 25% - that is over 50% reduction in two years. And we have still achieved a surplus"

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