Achieving IT Budget Efficiency
By Giorgio Migliarina, CTIO, Telekom Malaysia
In a world that is now incredibly interdependent, not a single day passes without checking the price of oil, the outlook of the Chinese economy or the US interest rates. All these factors contribute heavily to the current uncertainties affecting developing economies, and most companies in our part of the world have shifted focus to managing business performance in a possible economic downturn.
A large proportion of companies have started to review their overall expenditure for the next financial year, with double digit cut targets for companies in the most exposed industries.One of the first tempting actions is to cut the IT/ICT budget and postpone long term transformation programmes.For all the talks about strategic partnerships between business and IT, during downturns IT gets back to looking like a cost centre and not a strategic lever to improve productivity. That would be a mistake: numerous studies have proven that, since 1995, investments in IT were the direct driver for 40% to 60% of the annual labor productivity improvement in the US. Assuming IT projects are selected effectively; slowing them down would potentially have a significant impact on the level of competitiveness of a company in the mid and long term.
In case academic studies or trust in the impact of IT projects won’t be sufficient to preserve the IT budget, then the focus of every CIO must be how to extract most of the value out of IT investments. This can be achieved by 1) improving the efficiency of each project, and 2) by prioritizing projects with immediate impact.
In the telecom industry, internal IT investments usually range from 3 to 6% of revenues. Telekom MalaysiaBerhad (TM)’s spend on IT has recently maintained in the most efficient quartile of telecom operators, but despite this relatively good performance we found that both levers yield interesting results.
How to Improve Efficiency in IT Projects
Studies have shown that the large majority of project time is devoted to Business Requirement Specification (BRS) gathering, functional design and testing. When we reviewed our projects, we found that we could save up to 50% of the Business Requirement Specification (BRS) and functional design time, and 10% of the time to test. This not only enabled significant savings, but allowed us to reduce the time to market (TTM) accordingly. In partnership with our internal business customers, we launched a set of ‘TTM accelerators’ that we started applying to most new projects:
- Improving BRS gathering and functional design. We aligned incentives of business and IT professionals by ensuring both groups are incentivized to make tradeoffs decisions between costs, complexity and time without having to escalate. We also formalized the role of IT experts as consultants to the business and not as simple contractors, and ensured they are involved as early as possible to advise on ways to change requirements to reduce implementation complexity. Often business users are not aware that small changes in their requirement can potentially increase IT complexity disproportionately. Another simple but effective lever is helping users to get familiar with out-of-the-box functionalities upfront, before asking for requirements, to offload unnecessary changes to readily available capabilities. We also found that AGILE proved a great way to increase team spirit and create better functioning cross-functional teams
- Improving approach to testing. Compliance to risk management and regulatory frameworks usually makes testing a difficult issue to tackle. However, the push to digitalization and the need for rapid development cycles are forcing a review of testing approach and IT risk management: companies cannot ‘go digital’ fully without reviewing the way risk is defined and dealt with. In line with these trends we are reducing the burden of testing especially for functionalities that relate to customer interfaces, promoting a ‘fail-fast’ environment whereby resources are shifted from testing to development with a different risk calculus agreed with Finance and Audit
We are not through adopting all these accelerators, but based on the results so far we envisaged that we can save up to 40% in the development time and/or costs of standard business enhancements projects oncefull adoption is achieved.
Prioritization of Projects with Immediate Impact
In times of budget constraints it pays to change the portfolio mix of IT projects towards projects with faster return on investments. It sounds obvious but the complexity of prioritizing investments across different business units, varying degree of end customer impact and interdependencies with other initiatives makes this lever somewhat difficult to use. At TM we decided to prioritize a cluster of projects for Big Data Analytics and Cloud, and the benefits we are gainingare significant:
- Creating a common Infra for big data analytics. At TM, we are building an enterprise wide common analytics platform as this eliminates storage silos and simplifies data management tremendously.This accelerated big data adoption. The first benefits we are seeing are inbroadbandfault rate reduction: thanks to a deeper understanding of factors contributing to faults, we are now able to intervene before customers call and remove the underlying causes before faults occur. Pilots show that the adoption of analytics in driving field force activities can reduce fault rates up to 30%, with a proportional reduction in costs.
- Adopting cloud. Since 2013 TM has a sizeable private cloud, by some measures one of the biggest in South East Asia. The benefits of cloud are well understood, but it is comforting to see them in action even a short time after project completion: Total Cost of Ownership (TCO) reduction of 30% through 60% improvement in IT infrastructure requirements and resource utilization. Not to mention real time provisioning and process simplifications. An important selection criterionfor new software is now the ability to work in our private cloud environment.
The challenges posed by tightening budgets and economic uncertainties are surely going to put pressure on IT budgets, but there is perhaps no better opportunity to prove how a close partnership with the business can provide benefits across all company activities even in a short time. The days of the CIO as the enabler of business transformation may have finally arrived.