Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
In 1999, Don Morrison, Novell Inc.'s director of information support services, was looking to simplify the hiring of new employees. Digging into the process, he discovered 170 different applications throughout the company that its 6,000 employees might need access to in doing their jobs, things like e-mail, benefits accounts, customer data and expense account forms. The hiring process alone involved 19 different applications that generated more than 75 different data flows and integration points. Many of these applications belonged to departments that didn't care to give up control of certain types of data, such as employee titles, salary information or e-mail addresses. Had Morrison not found a way to allow departments to own and control data they considered critical, he says, "the project would most likely have ended prematurely because of the political nightmare it presented."
|Novell's IT architecture used to be made up of more than 190 applications. Human resources alone included more than 100 interfaces. The orange squares represent Novell's three primary enterprise applications, PeopleSoft, Phoenix and Oracle. The green squares symbolize the various single-purpose applications, and the red squares show the outside vendors to which Novell's systems are connected. |
The solution was to use XML to integrate applications and IT services into a single workflow process that tracked employees from hiring to firing, providing access to appropriate managers and synchronizing changes automatically. When an employee leaves, for example, access to networks, phones and buildings is automatically shut off. Novell says it saves more than $475,000 every quarter in employee productivity, new-hire setups, help-desk work and other costs, for a return on investment of 323 percent.
Morrison and his colleagues had come face-to-face with complexity, the devil of CIOs in every companylarge and small. "Anybody who has more than three employees deals with complexity every day," says Andrew Rowsell-Jones, a research director in Gartner's Executive Programs. Too many CIOs face daunting levels of unnecessary complexity, which detracts from the efficiency of their systems and business processes, adds millions to annual costs and reduces drastically their ability to respond flexibly to new technologies, business processes and markets. In a January CIO Insight survey, 42 percent of the almost 500 IT executives polled said their systems were more complex than necessary, a number that rose to 54 percent of those at companies with more than 1,000 employees. And maintaining and managing that excess complexity cost them an average of 29 percent of their IT budgets.
The good side of complexity is what it lets companies doget new employees up to speed, for example, or offer customers a new online service quickly. Rowsell-Jones cites Citigroup's proprietary network for clearing international settlements. "That's an example of using a phenomenally complex network of relationships among their own subsidiaries and other banks. They use that complex network to compete, to do things more cheaply than other financial institutions that don't have that scale and complexity," he says.
The dark side for most companies, however, is a costly, confusing spaghetti bowl of systems. Forrester Research Inc. has put some numbers on the problem: a server utilization rate of only 60 percent, meaning $20 billion in new servers was wasted last year, while the largest 3,500 firms will spend an average of $6.4 million this year on systems integration. And CIOs are devoting up to 70 percent of their budgets to simply keep their beasts at baymoney that can't go to new business opportunities. McKinsey & Co. estimates that IT infrastructure and application costs are 20 percent higher than necessary because of the confusing variety of technologies, such as database and desktop operating systems, in use.
A large part of that cost is people. Alan Ganek, head of the autonomic computing division at IBM, which develops technology to automate IT operations, estimates that in the past 10 years the cost ratio of software and hardware to the people required to maintain it all has reversed; 80 percent of the money previously went to technology, while 60 to 75 percent now goes to people.
Yet the benefits of cutting complexity can go far beyond saving money. "Everything is much easier across the whole value chainfrom training the users to maintaining the systems to being able to scale up the systems, even negotiating vendor licenses," says Howard Lapsley, a partner at Mercer Management Consulting.
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