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Champy: Don't cut so deep it hurts

Industry expert and author James Champy warns CIOs against making budget cuts so deep they bleed -- and wind up scarring organizations.

There may be fewer cost pressures on companies this year than last, but budget dollars are still scarce.

James Champy

In a relentless obsession with cutting costs, companies are limiting spending on every function, including IT. The reason is simply productivity: Customers expect to get more for less as technology improves and vendors compete. Dell is one of the best examples of this in technology. When Michael Dell introduced his build-to-order, direct-to-market business model, he changed the cost basis for manufacturing and distributing PCs -- and the whole market had to follow.

But as we learned in the '90s, mindless cost cutting can damage a company and the quality of its product or service. The retail banking industry is a good example of just how much damage it can do. Customer service worsened as banks cut back on customer facing operations. Suddenly, there were fewer tellers and fewer people answering customer calls.

Retail banking was saved, not by intelligent process redesign, but by the accident of technology: the ATM, and the self-service capabilities that it enabled.

Still, some companies have learned to become dramatically more productive (lowering unit costs) while delivering more value to customers.

Just look at the cool new features on your mobile phone -- and how its price has dropped. Thanks to Nokia and its competitors, the telecommunications industry is on a mission to provide customers with more for less.

In their drive to deliver more with less, companies will demand that IT, as a business function, becomes more efficient. Here are some ideas for how IT can keep costs from rising while increasing performance and value at the same time.

Costs: One of the best ways to drive IT unit costs down is standardization -- of data, hard technologies, software and processes. Most companies will not like this idea. Each business unit will argue that its work requires unique technologies. The truth is often just the opposite: Work patterns and processes get repeated, division by division and often company by company. If a company can standardize its technology, it can reduce costs and free up funds for the company's products and services -- whatever makes that company distinctive and competitive. Standardization is an important first step.

Performance: Well-run IT organizations measure their performance by a preestablished set of service levels and unit costs. During the last five years, these service levels have been increasing, while unit costs have been falling -- due greatly to the dropping costs of technology. But we have known for a long time that IT does not alone create value. It's the combination of a company's technology and business processes that create value for a company and its customers.

IT must therefore increasingly focus on the performance of the company's business processes. How many repeat help desk calls are required to solve a problem? Can the company dramatically reduce inventories or even move to a build-to-order business model? How close can manufacturing get to a "lights-out" operation? These are the questions that executives will be asking, and IT needs to have a point of view.

Value: Like performance, IT needs to focus, not on its own value, but how IT is enabling a company to deliver more value to its customers. Value is the other side of the more-with-less equation.

Value can be delivered to customers in many ways: speed, service, quality, variety, innovation. And IT is central to all these. For example, five years ago, I refinanced the mortgage on my apartment. It required a visit from a mortgage company representative, the completion of seemingly endless paper forms, and at least four hours of joint effort. In 2004, a second refinancing required one hour of my time on the Internet; most of the data had already been entered on the mortgage company's electronic forms when I began the transaction. By my reckoning, there was at least a 400% productivity gain in the mortgage application and approval process, all attributable to the increased sophistication in the application of IT.

Delivering more with less can be considered a challenge or an IT capability. Since the need will be with us for a long time, I suggest that IT consider it a capability.

James Champy is chairman of Perot Systems Corp.'s consulting practice and head of strategy for the company. He is also the author of the best-selling books Reengineering the Corporation, Reengineering Management, The Arc of Ambition and X-Engineering the Corporation.

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