Kiss Your Apps GoodbyeBy Larry Dignan Print
For the last three years, you've been reducing expenses by tackling the low-hanging fruit. Now it's time to get serious. Nuke apps you don't need.General Motors, Hewlett-Packard, Boeing and 3M are all going on a low-application diet. You may want to join them.
Sure, you cut lots of workers when your budget got sliced three years ago. Then, you pushed out programming to contractors, here and overseas—you outsourced—when you needed another big cost saving. Along the way, you've consolidated hardware in your data centers and then the data centers themselves. And you've watched with glee while the telecom business imploded and your bandwidth costs headed toward zero.
But if you really want to make a difference, you need to nuke your apps. Your company probably has scores, if not hundreds or thousands, that it hardly uses.
And the benefits of cleaning up the bloated mass of programs far overwhelm the savings in letting more workers go or in the other low-hanging-fruit categories you've already gone through, according to more than a dozen technology executives interviewed at the Society of Information Management's SIMposium last month in Chicago and at PeopleSoft Connect in San Francisco.
Cleaning house takes lots of lifting and sweeping. Here is what is at stake. According to Nucleus Research estimates, a large company with $5 billion in revenue, 750 information-technology workers and 500 applications could save $37.5 million in staff costs, $1 million in license fees and $500,000 in hardware costs each year by settling on a single, carefully chosen set of applications used throughout the organization.
Think it makes sense to buy office supplies in volume? Multiply that principle exponentially when it comes to the software running your business—and the effort required to support each piece.
Total Savings: $39 Million a Year
What a typical large company ($5 billion in revenue, 750 information-technology staffers and 500 applications) would save by halving its software portfolio.
Indeed, streamlining the programs on your servers—and on your shelves—isn't just a technology issue. It's a business problem.
AMR Research says saving on license fees is just 1 percent of the benefit of cutting back the number of applications you use.
When you streamline applications, all parts of your business start operating the same way. It is efficiency in action when you have just one way to procure raw materials or deal with customers or interact with suppliers.
AMR Research estimates that as much of 7 percent of revenue—2 percent cost of sales, 2 percent sales, general and administrative (SGA) costs, 1 percent technology costs and 2 percent working capital—can be saved as business processes are consolidated, as a result of kissing a lot of your apps goodbye.
Companies are increasingly getting the message.
At 3M, Jerry Erickson, vice president for applications, says he expects his company's effort to clean house will reduce an incalculable number of applications in use "by a factor of 5.'' If successful, 3M's cost of sales will decline by 1 percent or more. That's $92.8 million out of the company's current $9.3 billion in cost of sales. Add it up, and 3M could potentially boost its net income of $2.40 billion by 3.9 percent.
But for every grand plan, there are significant hurdles.
Fiefdoms in different businesses within a company, the failure to demand or get users to adopt the chosen applications that remain, snafus in training and support of the new single suite of software, and even the tenure of those in charge of the plan can postpone the benefits indefinitely.
An inability to get buyers to give up their paper forms kept Boise Cascade's attempt to create a common set of financial systems from going electronic until 2003. The project started in 1995.
Indeed, most of these projects last at least three years and easily can take five. Which means they are likely to outlast the chief information officer in charge. Today, the average tenure of a CIO is three years, according to Meta Group.
And then there are the most basic issues—figuring out how many applications you actually have.
3M tried but couldn't do it. "We don't know the numbers," says Erickson. "That's part of the problem."
Staff Costs: $37.5 Million a Year
Savings result from cutting 50 percent of the 750-person I.T. staff at a fully loaded cost— including benefits—of $100,000 a year per employee.
A company of 3M's size is likely to find thousands of applications, says AMR Research analyst Bill Swanton. These range from custom applications and systems that are decades old, to ones added through mergers or acquisitions, he points out.
"Most companies that have these application issues have built themselves up by mergers and acquisitions," Swanton says. "Instead of operating as, say, a $5 billion global company, they operate as a series of $200 million ones."
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