Thrift Is the One Metric That Matters AnymoreBy Joseph Szmadzinski Print
Identifying waste has become the quintessential skill. One likely area of excess: your software portfolio.
For the job I doadvising financially troubled companies how to restructure their technology operationsbeing able to pinpoint inefficiencies is key. I focus on structural cost reductionthings you can do to lower your cost of doing business, not on a one-time basis but permanently. It helps to look at the information-technology function with an outsider's eye.
Think about it. When a company like IBM Global Services or EDS comes in, it's looking to create a profit margin for itself. If an outside contractor offers to run your infrastructure for $20 million, and you're already doing it for that amount, you can be sure you're doing something wrongbecause the contractor has a margin of 15% to 30%. So we challenge technology executives to make their operations airtight before paying someone else to run them.
At Ryder System, where I consulted in the mid-'90s and ended up as interim chief information officer (CIO), the company was looking to outsource everything. We realigned the technology infrastructure so that when Ryder did move to the outside contractor, it was an efficient organization that didn't require a lot of time and effort to remake. That conflicted a bit with what some of Ryder's technology managers wanted, but we got it done.
You can't expect everyone to be happy when you're coming into an organization with the mandate to make it better or more efficient. Over the years, I've learned it's best to test an organization's mettle right away. I do this with what I call "quick strikes"initiatives to see how serious the company is about change. Quick strikes need to be visibleeverybody needs to be aware of them. Otherwise they aren't the eye-openers you need.
At Ryder, which was in the midst of a turnaround, one of the quick strikes we did was in telecommunications. We went directly to the vendors Ryder had been working with and proposed a series of changes. In particular, we asked the vendors for better prices and scaled back the repair and maintenance contracts Ryder had with them. And we insisted on doing an audit of the telecom vendors' billsan exercise that almost always uncovers something of benefit to the customer. It wasn't the normal custom within Ryder, and it shook things up right away. That, of course, was the idea.
Another area that's often ripe for structural cost reduction is a company's portfolio of applications. Most big companies are the products of roll-ups or mergersit's incredible how many redundant applications you end up with. When you're in bankruptcyin fact, even when you're doing wellyou can't afford to maintain every legacy application. The cost of ownership is too high. In most situations, you can expect to streamline the application portfolio at least 30-40%.
I like to recall a color chart we made while I was the interim CIO at Hayes Lemmerz, the wheel manufacturer. The situation was so severe, there weren't enough colors in Excel's palette to itemize all the company's applications. The software probably has about 60 colorsand we came up with over 90 disparate systems running that organization.
That color chart signified more than just the company's individual systemsit revealed the heart of our business processes. There were probably 15 different financial software systems, a half-dozen engineering systems, a couple of redundant e-mail systems. That wasn't just a problem for my vendors, it was a problem for me. It meant I had redundant people maintaining multiple support systems. In fixing these things, I was solving a monster business problem.
The techniques you use in a bankruptcy or in a major restructuring apply to all businesseseven healthy ones. But when a company is bleeding, and shareholders are in pain, there's a whole different mindset. If you set your mind to it, it's amazing how quickly you can enact change.
Written with Robert Hertzberg and Joshua Weinberger
Joseph Szmadzinski has been chief information officer at GMAC Residential and The Handleman Company. As a principal at AlixPartners LLC, he helps companies realign their technology operations.
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