It's an ongoing battle, but one that could be worth millions to win.
Complexity is slow, expensive and not secure. If systems are difficult to use, employees get flummoxed, wasting work time searching for functions or waiting for help. Multiply that lost time by thousands of employees, and entire companies slow down. When a new business opportunity or a chance to beat a competitor comes along, you can't move fast enough or don't have the funds to invest. (See "CIOs Seeking System Interfaces That Are 'Apple-Simple'.")
J.C. Penney's new COO Michael Kramer complained to Wall Street recently that he discovered the company runs 492 applications, 88 percent of which are custom. He thinks it should be running about 100 apps, total. "It's a mess," he said. The troubled retailer, which lost $152 million last year on sales of $17 billion, plans to simplify IT as part of a massive transformation project. "When you want to make a change in the business, it takes a lot of un-layering and putting back on," Kramer said. "That costs money."
According to The Hackett Group, typical companies run more than twice as many data centers as world-class companies, which Hackett defines as those with IT groups in the top 25 percent for both efficiency and effectiveness. Typical companies also run an average of 39 applications for every 1,000 end users, compared to just 20 at high-performing companies. As a result, the best-run IT groups deliver services 15 percent more cheaply than typical companies.
"Less complexity has material benefits to the business, not just a positive effect on IT spending," says Rich Pople, global IT practice leader at The Hackett Group.
For example, vigilantly guarding against complexity paid off for some high performers when the recession hit in 2009, Pople says. During that dark time, typical companies cut IT costs by an average of 6 percent, mainly by stopping new projects and slashing end-user support.
Elite companies, however, reduced IT spending more--by 9 percent--mainly by retiring legacy systems and simplifying their technology environments. At the same time, they kept application development going, introducing new features for employees and customers and watching low-performing competitors tread water on last year's capabilities, he says. "These companies were in a better position to grow."
Despite the crunch, typical companies have so much old, complex IT that they can't think about cutting the staff or systems that keep it going. Pople calls that "entitlement spending" because, like federal programs such as Social Security and Medicaid, it's difficult to make drastic changes. Letting IT entitlements grow, he says, affects finance and procurement, making these functions more expensive to run than necessary.
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