The Hindu Business Line : Three Cs of cost-cutting on the path to profits

NOT ALL the inhabitants of paradise are intelligent, nor all that technology promises, paradise. "The 1990s way of doing business is dead," declares Erik Keller in Technology Paradise Lost, from Dreamtech Press (www.wileydreamtech.com). "We are living through an IT inflection point." Good news is that, for companies to move ahead, what is needed is "a different perspective".

Bad news, for your IT department, is that you don't need "large increases in IT budgets." Thus, the days of `caviar' spending are gone; what's in is `pork and beans' attitude. The subtitle of the book, therefore, reads: "Why companies will spend less to get more from information technology."

So, what's `the next new thing' in IT? It's not going to be a thing, at all, "but a new way of thinking," according to the author. "The `technology-thing' of the past is quickly being replaced by the `business-thing' as defined by those who master spreadsheets and ledgers." The much-despised accountant is, therefore, not dead!

When buying complex technology, look at the total cost of the project, advises Keller. The software-to-services ratio could be 1.5 to 2 for simple installations, and shoot beyond 10 for "big multinational intergalactic implementations requiring lots of customisation, integration with legacy systems that change fundamental business processes".

A chapter titled `less bang for the IT buck' touches a raw nerve: "It is easier to change software to accommodate business processes than it is to change corporate behaviour to accommodate software."

Too tempting but too costly too, as more buyers recognise. The simple truth is that the advantages software gives are outweighed by the cost of maintaining it. "When companies bought software based on emotion or tradition rather than fact, they usually found themselves scrambling at the eleventh hour; core pieces of functionality wound up missing, thus requiring customised and expensive links to exiting systems. Because these existing systems were not decommissioned, costs and complexity soared." Too familiar a scene, you'd agree.

Overcapacity exists in power companies to tackle demand beyond peak loads, and this may range from 15 to 30 per cent. But IT companies, where too overcapacity is justified ensuring continuous service, the percentage is "upward of 90 per cent". Get more out of your assets, exhorts Keller. "In some organisations, as little as 10 per cent of all available resources are used at any single moment, making systems management software very valuable." Try knowing more about BDNA, and Motorola's two-pronged attack on IT costs using `Fusion' and `Alliance', that the author mentions in this regard.

One of the tips in the `survival guide for buyers' is the idea of `80-per cent solutions', without `complex bells and whistles that drive up costs and complexity'.

To achieve this, "get an agreement from users and technologists to list the `nice-to-have' versus the `got-to-have' features and functions of solutions."

Another caveat is never to ignore an inferior company or technology; it may be easy-to-use and `mature over time'. Incorporating them in your solutions can earn customer loyalty.

"Good times will roll, but the question is how and for whom," observes Keller in a chapter on `offshoring', a topic in the ongoing Presidential debates in the US. "Don't overestimate what your offshore partner can accomplish," cautions Keller.

Also, "ensure that you have support from `C-level' executives (CEO, CIO, and so on)." Most important, "don't assume less management will be needed."

Like it or not, "the days of big budgets without justification are over." Should we blame the `poor economic climate' for this reality? "A chronic lack of financial analysis for individual projects or the entire IT budget is equally to blame."

There are four styles of corporate spending, points out the book. Path of `propaganda' is where you buy what the sellers tell you to buy. Path of `problems' uses "high-spending strategies from the past".

Path of `pennies' leads to "buying the bare minimum software and hardware on the market". And the fourth is the path of `profits', to balance "price and productivity," and to take that, you would need three Cs of cost cutting — "capacity, capital and cleverness".

There is a strategy to regain paradise. To know that, however, you should be clever enough to get hold of Keller.

BooksOfAccount@TheHindu.co.in

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