Can IT switch efficiency gains to business effectiveness?

As the UK shifts out of recession, businesses and governments in Western economies are facing a new reality, with increasingly stiff competition from...

As the UK shifts out of recession, businesses and governments in Western economies are facing a new reality, with increasingly stiff competition from China and India combined with the challenge of growing in a tough economic climate.

What role can IT take in this new economic reality, where the need to improve operational efficiencies through smart IT is outweighed by the demands from stakeholders to grow the business?

Thomas Nies, a veteran of the IT industry, who has headed software firm Cincom for the past four decades, predicts a bleak outlook for the recovery. "The financial crisis will take a decade to work through. I believe Western economies will experience 0% growth in GDP."

He says companies will no longer be able to grow 3-5% in line with the economy. To maintain even 3% growth, businesses will have to expand by acquisition, like the recent sale of Cadbury to Kraft, or steal customers from rival businesses.

It will be near impossible to compete with China and India, which have "an almost endless supply of cheap labour", says Nies.

Demonstrate IT effectiveness

Companies will not be able to survive just by tightening operational costs. "For the past 40 years IT has provided businesses with a way to run more efficiently. Now IT will have to demonstrate effectiveness by delivering systems that help businesses improve [how they deal with customers]."

Nies is betting his company on this premise: to sell software that allows companies to improve the customer experience. By being better at understanding the customer, Nies says a company will win business from its rivals.

"The CIO needs to be on the board," says Nies. But IT must also take a radically different approach to IT services, otherwise it will be unable to fund the new projects which are essential for the business to grow.

Savings through simplification

It is no longer good enough for IT to reduce its annual expenditure by 5%, says Iain Stephen, director of enterprise servers and storage for Hewlett-Packard UK and Ireland. The CIO could easily see the annual IT budget cut by 5%, eradicating any savings. The CIO needs to think differently.

HP's IT strategy came from the top down, with CEO Mark Hurd stipulating that IT costs must be slashed by 30%. Like most large companies, 65-80% of HP's annual IT budget was spent on maintaining systems, leaving very little to invest in IT innovation to support the business.

But over the past two years, IT costs have been cut by 30% through massive simplification in IT systems. HP has reduced the number of supported applications from more than 4,500 to fewer than 1,500, and this will eventually be reduced down to just 500. It has consolidated 80 datacentres down to nine. Its Siebel and SAP systems are standard globally, with no modifications, which means that HP does not have to maintain custom implementations. It adapted its business practices to the software, rather than modify the software. The result is that Oracle (for Siebel) and SAP manage the applications, not HP, which frees up valuable internal IT resources.

HP is not alone. The BBC plans to make use of industry standards, platform-independent systems and off-the-shelf technologies as part of its technology roadmap, which was released last week by Spencer Piggott, head of technology direction at the BBC.

Some organisations are using cloud computing to extend legacy IT. For instance, Royal Holloway University has begun using Microsoft Live@edu cloud-based e-mail system for new students, giving its existing in-house Exchange server a new lease of life. IT director Laura Gibbs says, "Using Live@edu gives us a lot more capacity on our existing Exchange server. We are getting a lot more life out of our existing investment."

Modify business processes

Unlike in previous recessions, IT has more options and opportunities to do things differently this time. "Business processes must now modify to keep us competitive, ensuring that internal costs are minimised while retaining speed and flexibility of implementation and releasing money to invest in innovative new services," says Albert Hitchcock, group CIO at Vodafone.

Cloud computing, outsourcing and buying standard software packages can all help IT reduce the ongoing cost of maintaining business systems. This will free up budget and staff to focus on the important things, like helping the business grow.

Read more on Managing IT and business issues

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