Dialing for Dollars

9 January 2003

by Michael Mah

A few weeks ago, I had the opportunity to work with an IT management team at a large Fortune 100 company. Worldwide, the company has more than 1,500 IT professionals across three continents doing applications development and maintenance (ADM). One of its charters in the next few months is to decide whether there are areas that might benefit from outsourcing or whether the work should be kept inhouse.

I asked Don (not his real name), one of the managers on the team, what some of the core objectives were for IT in the upcoming year. Like many companies these days, it is facing significant pressures in today’s economy. Many areas of its core business are undergoing drastic changes. Don replied that management was looking to fund new technology projects with the cost savings extracted from productivity improvements in applications maintenance and other areas. They talked about “reinvesting” savings to finance these new initiatives. It seemed clear that since IT budgets weren’t likely to increase in 2003, getting money for new projects had to come from somewhere. Why not wring the sponge a few times and see what drips out?

The problem was, they didn’t have any measures or indicators of what their productivity was as a basis to uncover potential areas for improvement. Sure, a number of outsourcing suppliers were making promises on productivity if they signed a contract. But without a metrics baseline on current performance, it would be difficult to substantiate the claims. Watts Humphrey once said, “If you don’t know where you are, a road map won’t help.” Like many organizations, this one didn’t know where it was in terms of IT efficiencies. So even if things improved, it would be hard to tell.

Incredibly, it didn’t take long for them to find out when they put their minds to it. I suggested to them that it was very likely that the information was there; they simply had to “mine it” by asking their teams the right questions and gather basic metrics for speed, effort/cost, and quality as a function of size across a sample of their projects. In a few weeks, they had initial indicators in three of their business units with data from new development, package installations, and maintenance enhancements. Figuratively speaking, on their “road map,” the arrow that says “YOU ARE HERE” was starting to emerge. In certain areas, their projects were comparing very favorably against industry trends. Some were in the upper quartile. In other areas, not so good.

More and more, IT managers and CIOs are going to be more like investment portfolio managers. Imagine trying to assess the mix of equities, bonds, and portions of, say, a mutual fund, without having financial information on the individual holdings. Without information like this for their IT portfolio, it’s difficult for CIOs to decide what to outsource and what to keep inhouse. If they do outsource, a CIO wouldn’t have a way to evaluate whether productivity is improving. Sure, a supplier could cut staff in a 100-person department to, say, 80 people, and costs would go down. But what if schedules on all their projects slipped from being short-staffed, and what if defects went up? It wouldn’t be a real improvement if other areas significantly suffered. That’s why IT executives need better information when making multimillion-dollar, and sometimes even billion-dollar, decisions.

Today’s corporations are looking to their CIOs and IT organizations to create new efficiencies, drive down costs, and improve revenue while driving innovation. A tall order for any group of humans. The trend is that nearly all core aspects of today’s modern companies are enabled with technology. Innovative managers will respond to this with an understanding that IT can be a strategic asset — an engine of the business — and not just another expense. But maximizing the performance of these assets calls for better measurement and management to align the portfolio, especially in a down economy.

— Michael Mah, Senior Consultant, Cutter Consortium

© 2003 Cutter Consortium. All rights reserved.