Analysis

By CIOinsight  |  Posted 10-10-2002 Print Email
: How Do You Make Better Cost Decisions?">

Analysis: How Do You Make Better Cost Decisions?

CIO Toby Keeler is going to more meetings than he did two years ago, but he isn't complaining. They have helped him reduce the IT budget by 15 percent at Osmonics Inc., a $207 million water filtration equipment company in Minnetonka, Minn., without sacrificing any essential projects.

Most of our respondents pointed to "improving internal decision-making processes" as an effective way to manage costs—more than any other response—and we asked several CIOs and cost management experts how to do that. At Osmonics, the process, developed over the past two years, is fairly simple. Prior to a mid-year strategy session with other top execs, Keeler pulls his IT staff together to answer three questions: Are we lined up with where the business is going? What new technologies are out there? Can they contribute to the company's strategy?

"This is just back to basics," Keeler says. "It's doing what we should have been doing all along. There was so much panic in the dot-com frenzy that companies threw fundamental practices out the window. Two years ago it was spend or fall behind. Now, a project has to be scrutinized to make sure it meets a real business need. To do that, you have to have businesspeople coming to the table owning both the project and the results, and you need IT people saying what it's going to cost." Recently, Keeler tempered business-side enthusiasm for a CRM initiative with pointed questions about what it was meant to solve. The result: a pilot project limited to sales force automation rather than a sprawling initiative.

Keeler's experience illustrates two insights about successful decision-making. The first is that communication is critical. When we asked Ric Hughes, partner leader of IT solutions at PwC Consulting, to characterize companies that are skilled in decision-making, he said, "They tend to communicate very openly about IT objectives and costs."

Alan Boehme, the Atlanta-based CIO of Best Software Inc., says communication must occur among suppliers, vendors and employees. "And if you have a customer-facing application, you'd better involve customers as well," he says.

Communication can be face-to-face or written, Boehme says, depending on the culture of the organization. Enhanced project management tools in the future may help these discussions, but Boehme believes too many companies engage in documentation overkill, which slows things down. What needs to be communicated? Everything about a process that IT will support, he says—the personnel, system, implementation and lost opportunity costs, for example. And what is the cost of delaying a project?

CIOs often overlook the team of employees who maintain systems, says William Ulrich, president of Tactical Strategy Group Inc. in Soquel, Calif. "Let's say I'm a CIO, and my direct reports decide to purchase a [new] system," he says. "If I don't have input from the people in charge of my current system, I'm missing information on how it might meet our needs without buying a new one. These people might know how to retool."

Time and again, he's seen companies missing the savings they hoped for when lower-level employees weren't encouraged to speak up. "It's almost Dilbert-like," Ulrich says. At one federal agency, managers ordered rewrites on three subsystems, but they were highly interlocked with other subsystems under the control of different managers, who weren't consulted. Employees could see a train wreck coming, but it didn't become apparent at the top for another 12 months—and $1 million.

The second insight from our respondents and experts is that when it comes to managing costs, the business acumen of the CIO counts for more than technical wizardry. "Successful cost management is basic blocking and tackling," Hughes says, "but it's by seasoned veterans who really understand the business."

On his way to the CIO chair at Osmonics, Keeler came up through the business side, gaining experience in manufacturing and sales. "I don't say, 'This new technology is a great IT solution, so let's go use it somewhere.' I ask, 'What is the real business problem?' Maybe the answer is changing the business process, and that involves very little IT support. Or I can say, 'Here's a new tool that will work, and here's how we can control the cost of implementation—we only need 10 percent of this tool.'"

Boehme agrees that good decisions on cost management start with business savvy. "A CIO has to be married to the business," he says, "and take technology as a mistress."—Terry A. Kirkpatrick



 

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