Can an information-technology department cut its annual spending by 30% and still remain effective? Hewlett-Packard is on track to do that under a five-year business transformation plan that calls for cutting information-technology costs from $3.04 billion in 2003 to $2.11 billion in 2008.
HP offers a case study for tech managers on how to consolidate operations. I have learned of at least seven places where the $98.5 billion company, which makes PCs, servers and printers and offers consulting services, plans to transform its business.
Consolidate data centers. Over five years, HP plans to cut the number of data centers from 85 global locations to six super-centers, in three U.S. sites. Plans call for a tightly coupled grid-like structure to connect the six data centers for redundancy and fail-over backup. Consolidation has made it possible to eliminate underutilized computer capacity and to create a shared arrangement, including virtualization, for computing and file sharing. In achieving this goal, I understand that HP plans to reduce the number of servers from 19,000 to 10,000 while increasing processing capacity. HP spokesman Michael Moeller, in a voice message, said the number of servers will go from 22,000 to 14,000. He confirmed otherbut not allplan highlights.
Simplify applications. HP plans to go from 5,000 to fewer than 1,500 applications, including moving to five procurement systems instead of 84. HP uses a "portfolio prioritization" process in which low-value legacy systems are starved for maintenance funds and then forced into liquidation. It also looks at overlap in source code and then combines applications based on commonality. For instance, it found that 79% of the source code in order management applications in procurement overlappedand the applications were among those consolidated.
Reduce development sites. HP is going from 100 to 29 technology centers to develop and maintain internal software code. Previously, having that many work sites required more administrators and subcontractors, resulted in less code uniformity, and limited collaboration.
Shrink the workforce. Cutting back the number of applications and reducing the number of development sites make it possible to cut the I.T. workforce. HP is on track to achieve its goal of trimming the number of I.T. employees from 19,000 to 8,000. The company is also cutting the number of subcontractors by 7,000. HP expects to cut the effort devoted to program maintenance from 80% to 20% of total software spending over five years.
Implement an enterprise data warehouse. The crowning achievement will be the creation of a 400-terabyte enterprise warehouse to accumulate data from all applications. Enterprise warehouses that aggregate data across diverse functionssuch as finance and logisticsare rare and difficult to implement. That's because warehouses are usually functional, not cross-functional. HP is taking steps to ensure that data maps into a universally accessible format and is entered only once. The benefits? HP will eliminate 17 diverse database technologies, collapse 14,000 databases and reduce the number of software upgrades needed for separate databases.
Embrace service-oriented architecture. The HP architecture can be characterized by the separation of the supporting delivery infrastructureprocessing, data storage and communicationsfrom the applications and the user-managed portal. This design is an example of service-oriented architecture (SOA), where components of the infrastructure can be swapped for new technologies independent of applications. Through the portal, HP staff will be able to submit queries and request reports, without requiring changes to the underlying databases.
Reap the reward. The HP effort is driven by savings from the "upstream" supply chainthe streamlining of the management of inbound materials such as parts and subassemblies. Hard savings in reduced inventory, elimination of obsolete components, and other areas total $1.5 billion for 2004, and $1.4 billion for 2005. The company has also realized improvements such as the percentage of projects delivered on timewhich has gone from 81% in 2004 to 95% at presentand value-added per I.T. employee, a ratio of cost reductions per employee versus the cost per employee, from $150,000 in 2004 to $350,000 at present.
Although HP has another two years before its plan is fully implemented, the effort shows what can be achieved by pursuing a broadly conceived approach to I.T. reorganization that simultaneously engages hardware, software and network communications.
Paul A. Strassmann is a former technology executive at General Foods, Kraft, Xerox, the Department of Defense and NASA. He can be reached at email@example.com.