Cost-Cutting Spurs InnovationPosted 2010-08-17 Email Print
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Tight budgets at FCI did not mean an end to new ideas. The French company used continued cost constraints during the last decade to spur innovation in its IT operation.
How do IT organizations faced with reduced budgets and personnel innovate and prosper? How, when the business demands more services and an expanded portfolio of business applications, does IT expand into new technologies and deliver innovative solutions for the enterprise?
Renowned urban planner/architect Jaime Lerner offered this advice: “Do you want innovation? Cut one zero from your budget. Want more innovation? Cut two zeros from your budget.”
Can IT leaders take their cues from Lerner? Can they take advantage of constrained business conditions as an impetus for innovation? Can they become more innovative by cutting costs? That’s precisely what FCI, a global connector manufacturer based in Versailles, France, did in its IT organization.
In the face of economic constraints over the past decade in the communications, automotive and other markets it serves, FCI applied Learner’s principle of “innovation by removing one zero from the budget,” and has continued to take innovative approaches to delivering IT services and solutions alongside budget reductions. Here’s a look at how FCI accomplished this.
Years 1 and 2: Overnight, FCI’s IT organization reduced its budget by 10 percent. Initially, the reactive measures hit all discretionary costs, trimming fat and putting projects on hold. Six months later, there were further budget cuts. With the fat trimmed, the cuts dug into personnel: employees deemed “discretionary” and without whom IT could still be sustained.
Another six months and into the second-year budget cycle meant yet another 10 percent reduction challenge. As FCI reached the third cut in less than two years, it was clear that business as usual, with the additional reactionary measures/budget cuts, was not going to put IT on a sustainable path.
Considering the business forecasts, FCI leaders understood that IT budgets were not heading for a leveling—and certainly not for any increases—in the foreseeable future. Through an evolution of cognitive processes in a concerted program of cost-cutting efforts, IT’s leadership was transformed.
Rather than approaching yet another round of budget reductions as an obstacle to sustaining or improving IT services, the leadership looked at the cuts as an opportunity to provide innovative IT solutions. Heading into the latter half of Year 2 budget reductions, the leaders developed a five-year budget and strategy plan that incorporated annual reductions along with an innovation strategy that included additional business functionality, increased service levels and greater flexibility in IT delivery.
Year 3: After two years of budget cuts and increased demand on the IT organization with the introduction of a global data warehouse solution from SAP, further reductions were needed, including deep cuts in IT personnel in the U.S. operations. Leadership’s response was to establish a captive IT center in Bangalore, India, to balance resource loss with lower operating budgets for application development and support.
Infrastructure and service delivery (help desk) were targeted for additional cuts, but with a new solution: WAN restructuring with a single global provider, Orange, and reorganizing the service desk to operate as a global team with follow-the-sun practices.
Year 4: Increasing pressure on IT continued to inspire leaders with the demand for significant company restructuring. This included plant closures in high-cost countries, new facility startups in low-cost countries, a shifting in manufacturing operations, and a renewed push for advanced online presence and e-commerce capabilities.
As previous reductions exhausted the ability to reduce personnel even further in the United States, FCI cut contract personnel in Europe, shifting services to India and doubling the size of the Indian operations. Consolidation of operations took center stage, with three regional data centers (Americas, Asia and Europe) slated for consolidation into a single global data center.
Remote-access technology was replaced in order to eliminate high-cost, token-authentication technology with a certificate-based solution from iPass; Secure Sockets Layer (SSL) VPN technology was implemented with Web meeting capability; and WAN compression technology from Juniper was implemented to reduce data network costs as bandwidth demands increase. (At the beginning of 2010, the Juniper solution was replaced with Riverbed technology.)