CIOs and CFOs remain under extreme economic pressure to further reduce spend while maintaining high service and quality. We offer fresh thinking and guidance on how to work through the performance and cost optimization process.
IT Performance Optimization – A Framework For Constraining Budgets Without Sacrificing Business Transformation
Cognizant CIO Series
IT Performance Optimization – A Framework
For Constraining Budgets Without Sacrificing
CIOs and CFOs remain under extreme economic pressure to
further reduce spend while maintaining high service and quality.
We offer fresh thinking and guidance on how to work through
the performance and cost optimization process.
By Vineet Kapur and Akash Jain
With the global economy gradually righting standing that strategic initiatives should not be
itself amid continuing uncertainty, businesses sacrificed, no matter how deep the cuts must be.
around the world are adjusting to new economic
realities. Nearly all of them have been forced to We have developed a framework and related
trim their bottom lines and balance sheets methodology to help IT leaders meet cost-cut-
through aggressive cost and capital reduction ting objectives while preserving ongoing busi-
measures, sometimes to the ness transformation initiatives -- in other words,
Achieving such detriment of strategic business focusing on total performance relative to cost,
significant performance transformational efforts. rather than cost alone. The framework is based
on our experience in working with companies
optimization does Doing more with less is nothing that are facing these challenges. Through a
require dedicated new for CIOs. However, two things repeatable, six-step methodology (see Figure 1),
resources from have made cost-cutting especially our framework enables companies under duress
the client. difficult this time around. For to do the following:
many companies, IT expenditures
have for the last few years already been pared
I Assess their IT budgets and pinpoint opti-
down extensively, making the additional cuts mization opportunities.
seem even more painful. Additionally, CIOs con- I Collaborate with a strategic partner on new
tinue to be responsible for delivering new busi- ideas to drive effective performance manage-
ness capabilities despite facing even greater ment.
resource constraints for funding them. I Identify short- and long-term savings from IT
resources and optimizations.
Many companies will find it beneficial to turn to
service providers that specialize in performance
I Syndicate an implementation roadmap to trans-
optimization. But the key imperatives in these form performance improvement opportunities
economic times are speed, results and an under- into reality.
Our framework was formulated in response to
1. Identify Engagement Scope
I Conduct executive-level discussions to understand priorities.
I Ensure comprehensive scope.
I Identify key stakeholders.
2. Perform Data Collection
I Conduct interviews and gather financial/architectural information.
I Circulate questionnaires to different subgroups, such as application,
infrastructure and support desk.
3. Identify Optimization Opportunities
I Based on responses, list all possible opportunities within areas in scope.
I Categorize opportunities based on financial and organizational impact.
4. Quantify Benefits Through Identified Opportunities
I Scrutinize “optimization gaps” by benchmarking IT performance.
I Validate opportunities with stakeholders and executive committee.
I Based on the financial data, quantify the benefits from the opportunities
(for example, high, medium or low impact).
5. Explore Alternative Scenarios
I Based on client feedback, refine analysis of short-listed opportunities.
I Perform scenario analysis to determine the best possible sequence of
implementation (for example, high risk vs. biggest bang for the buck).
6. Create Implementation Roadmap
I Syndicate recommended sequence and the roadmap for implementation
(from immediate opportunities and low-hanging fruit, to long-term savings
accomplished by enabling a strategic agenda and transformation).
client requirements. We were engaged by a global, geographies included China, India, Asia Pacific,
multi-billion dollar Fortune 100 diversified and Eastern Europe and the Middle East. The
manufacturer that was facing a very sharp decline CIO was expected to enable this growth not only
in its top-line revenue. The new CIO was charged without additional budget, but also while
with reducing the IT spend by more than 7% reducing costs over the next two years. His
annually by the CFO and the board. Historically, challenge was to generate savings out of the
the company’s annual IT expenditures were current IT operations and then to continue
several hundreds of millions of dollars. In the funding all new growth in the new geographies
current year alone, the CIO was asked to reduce IT without any additional allocation.
spend by a very significant percentage.
He was also tasked with the longer term
At the same time, the company’s strategic plan challenge of becoming best-in-class while
called for two-thirds of its new business to come cutting down IT spend to less than 2% of
from areas of the world into which currently just revenues within five years.
one-third of its supply chain extended. These
2 CIO series
1 2 3
Identify Perform Data Identify Optimization
Engagement Scope Collection Opportunities
4 5 6
Through Identified Explore Alternative Create Implementation
Opportunities Scenarios Roadmap
Using our framework over the course of four With this particular client, the data collection
months, the client was able to identify tens of phase required two courses of action. The
millions in savings in the first year, most of it organization supplied financial data by applica-
derived from optimization of their support and tion, project and functional area, augmented by
maintenance activities. our internal centers of excellence to supply opti-
mal performance data for given functional
areas. Secondly, templates
The Methodology Unfolds
and questionnaires were cir- We have developed
In the first two phases of the methodology, the culated to key stakeholders a framework and related
main objective for this client was to assess IT who could supply ballpark methodology to help IT
budget and spend, and pinpoint optimization estimates.
opportunities. It was crucial that the client held
leaders meet cost-cutting
nothing sacred -- to do so would limit the scope Using this data -- plus objectives while preserving
of analysis and, in turn, the company’s progress reviews and inter- ongoing business transformation
opportunities for performance optimization, views with the key stakehold- initiatives — in other words,
thereby artificially constraining potential ers -- it’s important to create
savings. Limiting the scope without proper parameter-driven financial
focusing on total performance
analysis would also mean not viewing every line models that mirror the relative to cost, rather
item in the budget objectively. client’s budgetary constructs. than cost alone.
Furthermore, the financial
Aside from one or two areas deemed “strategic,” models enable a view where applications-relat-
the client did indeed consider all optimization ed expenditures can be organized by technology
opportunities, including infrastructure, mainte- towers, such as Java/J2EE, Lotus Notes, main-
nance and support, most applications and even frame applications, Powerbuilder applications,
certain business process operations. Sharepoint, Visual Basic, EAI and “other.”
CIO series 3
Financial modeling views also enable identifica- executive summary that can be presented to
tion of consolidation opportunities by tower, executive management and the CIO.
with vendor consolidation savings monetized in
dollars. Similar financial views can be prepared
Collaboration is Key
for infrastructure and other areas.
Throughout this process, it’s important to
The CIO was expected to Opportunities for IT perform- maintain a high degree of objectivity. During the
ance enhancement and cost sav- initial stages, clients are engaged via interviews,
enable this growth not ings are scrutinized for status updates and progress reviews, with the
only without additional “optimization gaps” by bench- objective being to elicit as much information as
budget, but also while marking the company’s perform- possible from their organization. Thereafter,
reducing costs over the ance to as great a level of detail during the latter stages, these same forums are
as possible by technology tower, used to form and validate hypotheses, make
next two years. IT/business processes and per- corrections and arrive at various scenarios.
sonnel. A key step in this process While developing the detailed roadmap,
is obtaining or constructing relevant benchmarks stakeholders are constantly asked for feedback,
that intersect for peer sets by competitors/indus- so that the roadmap is a comprehensive and
tries, geographies, size of company, etc. Various implementable workplan, including specific
sources are available for relevant yardsticks as deliverables, responsibilities, timelines and
public and purchased sources, the client’s organ- measurable potential savings targets.
ization itself and -- importantly -- our broad/deep
experience across various industries and tech- Achieving such significant optimization does
nologies. require dedicated resources from the client. For
instance, at this particular client, a number of
Benchmarking IT costs and performance is not stakeholders were focused 100% on the
simple -- executives must dig much deeper than initiative, including an IT finance professional
just their IT budgets and understand all compo- and a liaison who helped facilitate
nents of their businesses that could also impact communications with individual stakeholders.
IT costs. A structured taxonomy with defined There were additional people involved, who
metrics and data elements is required to accu- focused between 20% to 50% of their time on
rately gather the internal data needed to effec- the program, including the CIO and his direct
tively benchmark performance. That said, this reports. Other executives kept involved
step is nonetheless crucial, and the largest opti- throughout the exercise by attending and
mization gaps will undoubtedly provide an agen- endorsing key progress reviews.
da for scrutiny and analysis with client
stakeholders and, ultimately, the identification of In the end, the overall effort can be a very
specific performance optimization opportunities. worthwhile investment because -- when the
framework is followed -- the roadmap is fully
It’s important that stakeholders are given the syndicated and accepted by everybody involved.
opportunity to validate these financial models It’s really money in the bank: The CIO can take it
and incorporate their feedback. Validating and to the CFO and the board and even use it for his
syndicating the model typically requires several quarterly estimates because it details savings
progress reviews. After this iterative review, the that can be achieved by towers and the
parameters and the financial model are frozen, stakeholders involved. More importantly, it’s
with everyone agreeing to where they should be already been embraced by his team.
set for the first, second and third years.
Once validated, it’s important to sequence the
Key Principles Enabling Success
implementation of all the opportunities into Throughout the process, several important
logically phased scenarios, with outcomes principles can ultimately lead to significant
available in both P&L and balance sheet format. savings for the client.
This enables the client to see short-term results
juxtaposed against long-term savings I Disengage strategic IT resources from main-
opportunities. In the end, an implementation plan tenance obligations. On any CIO’s team, the
is laid out in the form of a detailed transformation best assets are the most experienced, skilled
roadmap for the IT organization, along with an and reliable people. However, these are the
4 CIO series
very people who tend to be consumed with technologies by implementing processes,
the day-in, day-out vortex of maintenance, compliance and toll gates as new infrastruc-
enhancements and break/fixes within the ture or applications are deployed. In some
firm’s mission-critical IT landscape. They have large global enterprises, it’s not unusual to
no time to work on strategic initiatives -- and find thousands of applications,
each time that they do seem to break free only about 20% of which are An IT architecture
from these demands to focus on a strategic critical to the functioning of the rationalization and
initiative, they soon get sucked back into the organization. By employing a
migration to a standard
vortex to address the next crisis. So, CIOs framework of rationalization
need to dedicate these people to transforma- principles (see Figure 2), it’s pos- set of technologies is
tion projects rather than letting them be con- sible to sequence the scenarios essential to keep the costs
sumed by maintaining the IT landscape when to develop an IT performance in check going forward.
such crises occur. optimization roadmap.
I Consolidate and optimize maintenance I Reduce maintenance of excess applications.
efforts with disparate vendors. It might make This particular client was running multiple
sense in some cases to have multiple vendors, instances of SAP as the result of numerous
but if you have too many of them, it’s ineffi- acquisitions. Even with SAP as the enterprise
cient as well. application of choice, a number of small addi-
I Conduct a rationalization analysis of the IT tional applications were deployed to do spe-
architecture. In the case of the client men- cialized tasks that could already be
tioned above, it acquires many companies in accomplished within SAP. By enforcing the
the regular course of its business, and the 80/20 rule, companies can sharply reduce the
integration of these companies has led to a maintenance of excess applications.
plethora of technologies, both in the infra- I Analyze global infrastructure assets. This is
structure space and the application space. An a very important functional area, as it often
IT architecture rationalization and migration consumes 50% to 75% of the entire IT budg-
to a standard set of technologies is essential et. Infrastructure consultants and enterprise
to keep the costs in check going forward. It is architects can use our Infrastructure Portfolio
also important to halt the proliferation of Analysis (ISPA) methodology to perform a
Cognizant Framework of Rationalization Principles
Disengage strategic IT resources from maintenance.
Consolidate/Optimize lights-on or
Conduct rationalization analysis
Rationalization of IT landscape architecture.
Enforce the 80-20 rule: a large global organization
is likely to maintain thousands of applications.
Over 50% of the IT budget is going to be for
infrastructure. Use standard infrastructure
Kill the incremental staff augmentation paradigm.
CIO series 5
Getting There from Here
Typical Expenditure Profile Optimized Expenditure Profile
IT Budget IT Budget
New Value Enabling IT New Value Enabling IT
Fixed $ Systems Transform
Systems $ Strategic
Existing Maintenance Perform Existing Initiatives
Systems Systems Maintenance
Infra- Lights On
Optimization of Fixed Expenditure
Enhanced Focus on Transformation
rationalization of the infrastructure land- was using an inefficient sourcing strategy,
scape. consisting of multiple vendors by tower.
IEliminate incremental staff augmentation Additionally, the company was also making many
and move to a managed services environ- acquisitions every year, about half of which are
ment. Staff augmentation only ends up costing fairly large-size companies, and the IT
companies more money organizations were running in parallel and
In addition to the savings because they’re not optimiz- operating as separate entities from the parent
derived from lights-on ing their strategic plan down
optimization, we were This is not unusual, but neither is it optimal, as
also able to target $35 These principles are extreme- maintenance, application development and infra-
million to $50 million in ly important and set specific structure costs squeeze out the ability to be
boundaries within which the strategic (see Figure 3). A structured and detailed
additional savings during performance-optimization framework and under-
methodology and framework
the first year, with the can operate. These principles lying methodology and governing principles can
recommendation for also enable the sequencing of specify the savings potential in all of these areas
the client to adopt different activities to develop so the client can focus on strategy.
managed services. the roadmap.
In addition to the savings derived from lights-on
optimization, we were also able to target $35
Refocusing on Strategy million to $50 million in additional savings dur-
At this particular client, there was an escalating ing the first year, with the recommendation for
spend on maintenance that was siphoning away the client to adopt managed services. By show-
resources from strategic initiatives. In fact, the casing several innovative contract structures in
CIO was considering shelving strategic projects the model, management could evaluate alter-
to meet his cost-cutting mandate. The company nate incentives. Creative risk/benefit-sharing
6 CIO series