Putting business first at First Data

First Data spends less than 4% of revenues on IT. How is it possible for this IT organization to operate successfully on such a small budget? Find out here.

How much would you expect an IT company to spend on IT? Maybe 10% of revenues? At least 7%?

Would you believe less than 4% of revenues? That's how little First Data Corp. (FDC), which processes credit transaction data and authorizations, spends on its IT operations.

With IT being such a mission-critical part of a financial services firm like First Data, how is it possible to spend so little on IT payroll, goods and services, and still operate a successful, 24/7 network of systems?

The answer, asserts Guy Battista, CIO of the Greenwood Village, Colo.-based First Data, is to run IT strictly as a business.

"Our foremost objective is to provide shareholder value -- to provide solutions that consistently improve our shareholder value," said Battista, a 30-year veteran of the IT industry, who has oversight of all IT operations. "Many companies fear their IT department -- they think it's a big black hole they keep throwing money into. In our company, IT is an integral part of the business."

IT is not only an integral, but quite cost-effective, side of First Data's business. According to the ROI on IT statistics from Alinean, First Data achieved a return on IT spending of 245%, and spent just 3.8% of corporate revenue on IT operations.

"They're very frugal, compared to what other companies just like them spend," said Tom Pisello, CEO of Alinean. "On average, their peers are spending 4.9% IT allocation as a percentage of revenue. Telecoms like Lucent and Bell South are in the 7% range."

Consolidation key to cost savings

One reason First Data has been able to keep IT costs low is that it has developed a rigorous process for integrating the IT departments of its new acquisitions into the corporate Information Services Group. There is only one IT department for all of its subsidiaries and departments. But that wasn't always the case, Battista said.

"FDC grew up as separate companies, and around '98 or '99 is when we started really integrating the company internally. We used the shared services concept -- where you have technology, finance, legal and human resources under one umbrella called shared services," explained Battista, who has been with First Data since '90, and worked in IT management positions at Shawmut Corp. in Boston prior to that.

Thus, First Data is able to act cohesively, as a united enterprise, and avoid redundancies and conflicts between business units in purchasing, IT infrastructure decisions and strategy.

"By consolidating IT and centralizing it, a lot of times you can reallocate assets and implement technologies such as virtualization, be it on servers or storage, to get the most utilization from your existing assets," Pisello said.

Today, whenever First Data evaluates a potential acquisition, Battista and others from the Information Services Group take a hard look at the prospect's IT systems, its contracts with customers and vendors, and how its IT operations might be best integrated with First Data's. "As part of doing due diligence, we come up with a pretty detailed integration plan, before we even buy the company," Battista said.

Consolidation is also at work within the IT group itself, in the form of its Smart Sourcing program, which involves keeping an inventory of IT staff and their projects, and farming out under-utilized employees to other business units as needed.

"It enables us to ensure that we have the right resources on the right jobs ... and saves the corporation the expense of hiring temporary contractors," noted Sherry Magwire, who oversees the Smart Sourcing program, in addition to her duties as a manager with the Technical Client Consultation team, which serves as a liaison between IT and customers.

Managing by metrics

First Data's subsidiaries include Western Union, TeleCheck and the Star Network of 1.7 million ATM outlets. In 2004, First Data handled more than 36 billion transactions, moving trillions of dollars. With millions and millions of financial transactions dependent, each day, on the smooth operations of First Data's systems, performance is absolutely critical to its customers, and performance metrics are the lifeblood of its IT staff.

"When you walk up to a device and swipe your card through the ATM to get some money or to buy something, you want an answer," Battista said.

At First Data that translates into daily attention to performance metrics and service level agreements. "I have a portal that pulls up metrics for me on availability, delivery and follow-up items," said Todd Cushing, a manager of data center operations. "The data is available at my fingertips, in real time. We can also use the dashboard to compare this year to last year, and make forecasts for the next year."

Magwire, too, keeps her eye on the numbers -- monthly scorecards that show how her team is meeting business expectations, and various IT specific reports on such things as how IT resources are being used, and whether project milestones are being met.

Those numbers are the subject of both team meetings and a 6:30 a.m. conference call with First Data's chairman, the business unit directors and a few key customers who consult on any performance issues that have occurred over the prior 24 hours.

"If I have even a couple of minutes of outage, you can bet it's going to come up in the morning call."

Emphasis on education

Getting good value from IT is also achieved through training and education. Battista offers business training to technical staff, so they can understand the business implications of their work. Called "Think Like a Client," the sessions help IT staff understand the client's perspective on technical issues, such as what a 60-second outage translates to in lost dollars.

"When I hire a Java programmer, I expect them to know Java. But we have to train him on what business we are in and what happens if a Java program they don't test correctly goes into production -- what part of the process is affected and what does that mean to the business."

Technical staff can also take part in the company's mentoring program, where an employee with a particular skill or area of expertise mentors another employee interested in learning that skill, be it technical, business or management know-how. Staffers can also sign up for training in program management to learn how to more effectively manage projects.

That sort of concern for successful project management is one of the characteristics of companies with the highest ROI on their IT spending, Pisello said.

So, too, is a concern for making sure that IT goals and business goals are in alignment -- something First Data clearly emphasizes through its morning management calls and business training for IT staff. "We see that as a big success factor," Pisello said. "Most of the companies that are tops on the list concentrate on making sure their IT projects are driving business advantage and are aligned with business goals."

For Battista, however, all of this boils down to one basic, common-sense concept: IT should be treated as any other business discipline, existing to support the business and helping it generate income. "You gotta remember that technology is a business and not an expense stream for the company. It's a business and has to be run like a business."

Sue Hildreth is a freelance writer and editor based in Waltham, Mass. She can be reached at Sue.Hildreth@comcast.net.

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