Modernization can be a lifesaver for CIOs drowning in the maintenance pool

Joel Dobbs.GIF

On CIO Forum, I wrote a post titled Are you committing career suicide? that quoted liberally from Bob Evans’ recent thoughtful article in Forbes titled Career Suicide and the CIO: 4 Deadly New Threats. In that article, Evans’ fourth deadly threat is “Surrendering to the 80/20 budget trap.” He describes the issue this way:

 

“…unless CIOs lead the way in reducing the portion of their overall IT budgets now spent on low-value infrastructure and keeping the lights on (it’s typically between 70% and 80%), then they will never liberate the funds necessary to invest in and create customer-facing applications and other innovative approaches to growth and engagement.”

 

Dealing with this issue involves far more than finding ways to begin to reverse the current maintenance/new development split (a significant task in itself). CIOs must look for ways to address the root cause of the problem for the future.

 

Several years ago we began a significant IT modernization effort in a company I worked for. The old systems were stable and required little maintenance and support but they could not support the trajectory the business was on for the future.

 

In most companies, one discipline plays a dominant role in the company culture. In some companies it is legal, in others HR or perhaps engineering or product development. In this company it was finance. Finance was involved, deeply, in every aspect of the company and pennies were pinched with ferocity usually reserved for mortal combat! As you would expect, the process for approving large capital projects was extensive; however, our proposals sailed through because of the urgency with which the company needed to change and our good track record with delivering also helped. The capital approval process was separate from the operating budget process and it was here that the problems began to manifest themselves.

 

The long-term operational costs were included in the total five-year costs we supplied as part of the approval process but when it came time to set budgets for the following year we were told that these had to fit within the across-the-board increases, usually in the single digits. We were able to absorb these, with considerable difficulty, for the first two years but by year three we had reached our limit. I scheduled a meeting with the president, who I worked for at the time, and explained our situation using the analogy of a swimming pool. I told him that my organization was like a person standing in the deep end of a swimming pool that was rapidly filling with water. That water represented the operational and maintenance costs, both human and financial, being imposed by all of the new technology we were implementing. Within the next two years the water would be over our heads and we would simply drown, unable to adequately support everything the company had just spent millions to implement.

 

My proposal was to take a total cost of ownership approach to all new development and to establish a running “account” of all new operational and maintenance costs we would be incurring from new development. These would be included in the following year’s baseline operating budget. We should not approve any new project if we were unwilling to commit to the ongoing operating costs. I proposed, and he agreed, that we manage this using the governance board we had established that included me and he heads of each of the organization’s business units.

 

It took a while to work out the inevitable implementation problems but the process worked. It also forced us to look critically at projects that required excessive costs to maintain in the long term.

 

The lesson I learned from this episode many years ago was that CIOs must be both intentional and vigilant when it comes to maintenance costs, both the dollars and the time. These things creep up on you if you are not careful and you and your organization can quickly drown when they begin consuming an unsustainable portion of your resources.

 

Getting control of operations and maintenance costs is critical if you hope to have the funds and people to invest in game-changing new initiatives. Here are a few things that have worked for me in the past to free yourself and your organization to focus on more strategic opportunities. 

 

  • Where legacy systems and basic infrastructure and operations are concerned, never do anything in-house that someone else can do as well and for less money. Older technology, especially where there is little or no new development, where the technology is relatively stable and where procedures and practices for routine maintenance are well established and documented, should be outsourced.     
  • Be aggressive in assessing and shutting down older technology where the usefulness and value is questionable. A system with only one or two users should raise serious cost-benefit questions. Yes, these do exist in many large organizations. Let me give an even more extreme example. During our Y2K preparations in the late 90s we found a surprising number of systems on our mainframe, written in of all things, INQUIRE, for which we couldn’t identify the owner. I made an executive decision to simply shut them down and see who screamed. No one noticed! They were orphans.
  • Use a total cost of ownership approach with all new technology. I am surprised at how many organizations don’t do this. Look at the total costs over a five-year period and work out an approval process that looks at total costs, not just implementation costs. This may take some work with your finance colleagues and your governance body but it is the only realistic way to view technology costs. This may require some change leadership on your part but failure to address this issue will doom you to failure. Don’t approve what you can’t afford.
  • Finally, find a way to establish an opportunity fund. We have done this in two companies I worked for. In one, the corporation established a fund and a mechanism for submitting proposals for funding new and innovative opportunities, much like a business plan competition. It is a great way to stimulate innovation. A second option is to get agreement to take a portion of the savings you generate from other initiatives and channel this into an IT opportunity fund. In one company I worked for we undertook a substantial rationalization of IT following a corporate re-structuring. I got agreement to take a portion of the savings and put them in an “innovation account” that we could use to exploit opportunities.

Freeing yourself from the 80/20 budget trap takes work and creativity, but it is the only way to keep your organization’s head above water.

 

Related links: The paradox of personal privacy

Leader or laggard: How do you rate?

 

Joel H. Dobbs is the CEO and President of The Compass Talent Management Group LLC (CTMG), a consulting firm that assists organizations with the identification and development of key talent and with designing organizational strategies and structures to maximize their ability to compete in the business worlds of today and tomorrow. He is also an executive coach and serves as Executive in Residence at the University of Alabama at Birmingham School of Business. Joel is also a popular and frequent contributor to the Enterprise CIO Forum where a version of this article was first published.

Labels: IT leadership
Leave a Comment

We encourage you to share your comments on this post. Comments are moderated and will be reviewed
and posted as promptly as possible during regular business hours

To ensure your comment is published, be sure to follow the Community Guidelines.

Be sure to enter a unique name. You can't reuse a name that's already in use.
Be sure to enter a unique email address. You can't reuse an email address that's already in use.
Type the characters you see in the picture above.Type the words you hear.
Search
Showing results for 
Search instead for 
Do you mean 
About the Author
This account is for guest bloggers. The blog post will identify the blogger.
Featured


Follow Us
The opinions expressed above are the personal opinions of the authors, not of HP. By using this site, you accept the Terms of Use and Rules of Participation.