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Deutsche Post DHL cuts IT budgets by half with a supply demand model

After moving to a supply demand model for IT, the German logistics giant Deutsche Post DHL cut its IT business expenditures by 50% and achieved better business-IT alignment.

How IT and the business can work together best to achieve the maximum in business results is an ongoing, probably endless debate among management theorists. However, for retired U.S. Army officer John A. Johnson, now head of IT for the DHL Global Business Services-Americas division of German company Deutsche Post AG, the argument about business-IT alignment is settled.

Deutsche Post, which does business as Deutsche Post DHL, is the world's largest logistics company. Headquartered in Bonn, it is the sixth-largest employer in the world, with some 500,000 employees.

About five years ago, Deutsche Post DHL went to a supply demand model for IT, a model sometimes called "IT demand management". Each business unit has a CIO and a "demand IT" team, who lay out an IT strategy roadmap with the business and negotiate with the supply side -- the internal provider of core IT functions -- for those services.

"It's a model that if allowed to work, and you can gain the business trust, can have dramatic results that impact the bottom line," Johnson said.

Johnson heads a six-person demand IT team for the company's Americas region. Since joining Deutsche Post DHL in January 2007, he and his staff have reduced the Americas unit's IT spending by half, from roughly €20 million (about $25 million) to €10 million. The decrease mirrors a similar reduction in demand IT budgets across Deutsche Post DHL, to about €155 million (about $195 million) from €300 million worldwide.

A key component of making the supply demand model work has been developing an IT strategy roadmap. "We mirror the business strategy. We make recommendations, but the final say lies with the business and their approval," Johnson said.

The supply demand approach followed by Johnson is "old wine, new bottle," said Jack Santos, executive strategist for the Burton Group Executive Advisory Program and a former CIO. "Back in the day, [the supply demand model] was plan, build, run."

The strength of the model, in Santos' view, is that it acknowledges that IT must be business driven. "You have to have that demand part -- the request for services -- coming directly from the business. So, I would commend the DHL unit for having a roadmap, which is a best practice, and getting the business to buy into that roadmap," he said.

The DHL roadmap, which looks at the current year plus three years, is specific to his business unit, as well as process-specific, Johnson said. The roadmap takes into account what it costs to keep the lights on for each application and for any projects and implementations, and ties those costs to the IT budget for the business unit.

Every time there is a business review, the demand IT team reviews the IT roadmap. IT costs are analyzed monthly for how they measure up against the budget and tie back to the roadmap. "We do a deviation analysis every month to actuals to explain any variances. It is constantly checked," said Johnson, adding that he manages the entire process on Excel. "You don't have to create major systems if you are doing it monthly."

Mark McDonald, head of research for executive programs at Stamford, Conn.-based Gartner Inc., is not surprised that Deutsche Post DHL has been able to save money on IT by moving to a supply demand model.

"The supply demand model is based on the premise that because IT is 'free' for the business, demand will always outstrip supply," McDonald said. Businesses need a way to manage IT-business investment so that it fits the available supply of IT resources. "What the model does is raise the political and administrative cost for an IT project by having [an IT demand management organization."

It's a model that if allowed to work, and you can gain the business trust, can have dramatic results that impact the bottom line.

John A. Johnson, head of ITDHL Global Business Services-Americas

While Johnson's demand IT team is chartered to reduce IT costs annually, new programs are being added and built. The group recently rolled out SAP software to more than 30 countries in Latin America simultaneously. And his IT demand management group is not just about managing budgets. Johnson is constantly looking for ways that his small team can "add business value".

Indeed, the attribute critical to the demand IT team's success is its ability to focus on the business. "We are not just a bunch of technical people who have progressed in our careers to leadership roles," Johnson said.

Before Johnson started working in corporate IT, he flew Apache helicopters for the U.S. Army. The military KISS principle -- "keep it simple, stupid" -- still resonates. "We make things way too complex within IT and in business in general," he said. "I hire people who have the ability to translate the complex and make IT simple for the business."

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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