Thursday, May 12, 2005

Prune IT Systems, Not Budgets

Michael Schrage, codirector of the MIT Media Lab's eMarkets Initiative, authored an intriguing column in the Jan. 15, 2005 issue of CIO Magazine. In it he wrote, "If you want to cut costs but avoid painful consequences to the business, don't just slash IT spending; prune redundant systems, and make sure your CFO and CEO know why." That sure sounds like sound advice to me. One of my article, "Architect Your IT Portfolio," delivers pretty much the same exact message.

As Schrage points out, "cutting IT costs is one of the most expensive things an organization can do." He suggests, instead, following the advice of GM's CTO, Tony Scott, who says you save more money through "systems reduction" rather than "cost reduction." In other words, by refocusing the business on cutting the number of IT systems instead of the volume of IT expenditures, GM was able to achieve durable, sustainable savings. For example, according to Scott:
discovered that they have six or seven -- maybe even 10 or 12 -- overlapping databases in three or four rival departments that could (and should) be consolidated into no more than two or three large shared databases. This doesn't merely reduce hard dollar IT costs; it provides a chance for operational and organizational efficiencies.
Granted, it's tough looking to GM for excellence considering they have $19.8 billion in cash liquidity yet a market valuation of only $15 billion. (Is GM really worth more dead than alive?) Nevertheless, they are correct in "treating systems and apps -- rather than budgets -- as the medium to be managed -- putting the managerial focus where it truly belongs: on the business value of IT rather than its accounting cost."


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