For enterprise organizations with sprawling global operations, spend management software and cost transparency...
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tools can help CIOs gain insight into spending and cost-cutting opportunities.
"A lot of companies have already found the low-hanging fruit," said Patrick Connaughton, an analyst at Forrester Research Inc., a Cambridge, Mass-based consultancy. "Now, it's about identifying the hidden gems -- the things that are more difficult to identify."
At Skandia Group Cos., a 6,000-employee European insurance company, spend management software from Ariba Inc. helped the IT organization cut procurement costs, specifically contracts and sourcing functions. The software pulls operational data from various systems within the organization and organizes it against a taxonomy, identifying duplicates, opportunities for vendor consolidation and other potential spending synergies.
"Every million we can add to the bottom line pretty much goes to our profit line, and it's a big lift for the business," said Shane O'Sullivan, group CIO at Skandia.
Kurt Shubert, IT manager for the applications support group at NYK Business Systems Americas, turned to a cost transparency tool by Apptio Inc. that pulled in and merged operational data with information from other systems, such as accounting, contracting and balance sheets. It assisted in reducing repetitive data entry for NYK, the IT arm of Tokyo-based NYK Line, which has 48,000 employees, and called attention to a dramatic increase in operational costs during a system migration.
"Now's the time for cost savings," Shubert said. With Apptio's Software as a Service (SaaS) solution, "we were able to significantly drag down the cost, and we used Apptio to show that there was a pretty significant ROI for our efforts."
In this recessionary economy, spend management software and cost transparency tools that help organizations better manage, group and analyze spending data to achieve cost savings are gaining traction, Forrester's Connaughton said. However, companies are not necessarily looking to purchase a lot of spend management software to identify where they can save money, he said, nor is it necessary to do so; many are simply focused on better leveraging the resources they already own to recognize duplications, synergies and cost-saving opportunities.
But with spend management and cost transparency tools, "The cool thing is the software helps you rationalize the data," Connaughton said. "The software recognizes patterns, and helps you to bucket these things in a logical way."
The tools let organizations run "what-if" analyses so CIOs can see where they might consolidate suppliers, for example. "Once you've rationalized things, it makes it easier to identify and reduce the total number of vendors you work with," Connaughton said.
Furthermore, "we do see some indicators that SaaS solutions are definitely gaining more traction, because there's less of an up-front investment, and you can get benefits faster," he said.
At Skandia, which was purchased by 50,000-employee U.K.-based financial services company Old Mutual PLC in 2006, the organization had maintained a "very, very federated business model," O'Sullivan said, operating in 20 countries across Europe and Latin America. Each unit has its own marketing, support structures, IT departments and the like, he said.
Old Mutual committed to finding cost-saving synergies, with O'Sullivan responsible for locating 9 million pounds worth. "The thing that was challenging was that the businesses had operated so independently before -- there was very little precedent for cooperation," O'Sullivan said.
O'Sullivan utilized Ariba's contract-management tool to analyze the size and spend, conditions, renewal dates and so on of supplier arrangements, in order to identify merger or cooperation opportunities company-wide. All told, 4 to 5 million pounds in procurement savings were identified in this effort.
"In most cases, we achieved procurement synergies much quicker than the rest of the operational IT synergies," O'Sullivan said. "The procurement system was hugely valuable in giving a source of information and coming out with really practical plans toward realizing those synergies."
In doing so, he used Ariba's sourcing tool, which helped IT manage requests for proposals and the like. O'Sullivan does not yet have figures for ROI in this area, "but we can see the richness and functionality, and we're looking to take on board more functionality to streamline the RFP processes … and introduce some alternative sourcing techniques," he said.
In looking for further synergies, "we had to look at what types of technologies we are using and whether there are opportunities to standardize that technology, and provide procurement opportunities from there," O'Sullivan said.
Kris Colby, director of Ariba's spend management services group, said his company's spend management software suite pulls together spending analysis, contracting, procurement and payment processes.
For instance, a company might have three different contracts with the same vendor but not recognize it because they are listed slightly differently in the system. "If you could combine those, you could get better pricing and services," Colby said.
The ROI on Ariba's spend management software tools is typically north of 10-to-1, with a payback period of less than 12 months, Colby said. Depending on the size of the company and the services requested, it can run from a few hundred thousand to several million dollars for an installation.
Cost transparency in a system migration
Apptio's cost transparency tool helped NYK Business Systems get a handle on costs associated with operational data.
Last year, the company had old mainframe and legacy systems and was in the process of migrating and centralizing much of its IT from four regional offices in North America, Europe, Singapore and Japan into one main data center. "It was a long, drawn-out process, at the tail end of a five-year implementation of a large ERP system," Shubert said.
"We were concerned about how we would track our costs relative to this new system," he said. "Previously, costs were dispersed among the regional offices. One of our goals as a company was to be cost-effective. The only way we figured we could do that is by being able to measure it, see if we were making beneficial changes, and where to attack [costs]."
Apptio's tool allowed NYK take operational data, such as metrics on incident tickets and outage information, and merge it with accounting data, contracting systems and balance sheets. "We put it into one model and essentially map out a model of cost and how it flows up to the business services we're providing," Shubert said.
The company can more easily attach a cost to its ticket data by using a rate table, determining how many people were affected by the problem described on the ticket and how much resource time is spent on the ticket, and comparing that information with that from the previous system.
In one case, the company wanted to see how effectively operational data was migrating as the new system came online in each business region. When North America came online, IT saw a dramatic increase in operational costs, Shubert said.
Using Apptio's tool, Shubert was able to drill into the details of the data and discovered that a particular area around electronic data interchange was becoming exponentially more costly as the North America business units were coming online. This was a pre-existing problem, Shubert said, amplified by the load on the new system.
"If we had just looked on the surface, we wouldn't have said, 'That's where the cost is coming from,'" Shubert said. "We took action based on modeling, and looked at how effective we were in dealing with each incident, and realized there was a lot of repetitive manual activity in reprocessing data."
The company decided to redirect some resources into automation as a result. "By doing that, we were able to significantly drag down the cost, and we used Apptio to show that there was a pretty significant ROI for our efforts."
How significant? Shubert said the company reduced its operating costs by half a million dollars a month worldwide. "Apptio led us to perform actions that saved [money]," he said.
Let us know what you think about the story; email: Rachel Lebeaux, Associate Editor