Enterprise Software

A 50K solution to a $500 problem

In a time when companies are particularly sensitive to their cost structures, too many executives are squeezing pennies from things like training and travel budgets while glibly allowing scoping decisions with large financial impacts to go virtually unchecked.

In the past, I have mentioned that scope is one of the CIO's strongest levers (and often his or her only lever) in managing the costs of a large IT project. In a time when companies are particularly sensitive to their cost structures, too many executives are squeezing pennies from things like training and travel budgets while glibly allowing scoping decisions with large financial impacts to go virtually unchecked.

By way of example, several years ago during the last economic slump I came across a company that had recently completed a large ERP implementation. Like most, one of the stated objectives of the effort was to reduce costs by making processes more efficient. In an environment where e-mails had circulated from the CIO herself informing employees that only one alcoholic beverage would be reimbursed during each meal, I sat dumbfounded while a room full of mid-level employees explained a specially designed process built in to their systems.

Being a vanguard in what later became the "green" movement, one branch office of this billion-dollar company sold its scrap office paper and other material to a local recycling company. Since their primary business was B2B sales of heavy equipment, they needed to create special processes to facilitate selling their scrap material, ranging from special functionality and data in their ERP system, to setting up and vetting the local recycling company as a business partner. Several consultants had been involved, meetings held, and IT staff mobilized to do the appropriate analysis, design, and development.

Like most efforts of the sort in large companies, once all was said and done, nearly 50 people had been involved in some manner, and a few hundred hours expended. When I asked how much revenue was generated by this special process, the person I was speaking with thought for a moment and then in perfect deadpan said "Well, I think it was $150 last year, but I will have to double-check the figures." Just the meeting where this process was explained to me took five mid-level staff half an hour, each person in the room costing the company in excess of $100,000 per year when benefits were considered. My "back-of-the -envelope" calculations indicated it took approximately a $50,000 investment of the company's money to generate around $500 over the five-year "payback period" of the system.

So while experienced and presumably competent people were carefully combing receipts and ensuring no one exceeded their evening's beer or wine allowance, the equivalent of the party of the decade (or someone's annual base salary) was spent on trivialities with nary a second thought. Ask any executive or mid-level manager how many "throwaway processes" he or she is aware of, and they can likely name ten with little thought. If these processes are at all like the example above, most large companies are literally sitting on millions of dollars of wasted expenditure, most of which could generate far more meaningful savings (not to mention employee goodwill) than bringing out the dreaded expense police.

Combating these excesses is in everyone's interest and starts with informing and empowering employees in a range of functions, IT included, to question activities that don't appear to generate meaningful revenue for the company as a whole. In the example above, a very easy solution would have been to simply give the recyclable waste away, forgoing funds that would barely cover 10 minutes of a staff meeting in exchange for applying $50,000 to a more worthwhile effort.

While IT cannot simply refuse to do anything until a vague standard of worthiness is proven, trust your staff to "smell a rat" and provide your support and "managerial weight" to investigate these wasted processes and refuse to allow "we've always done it this way" to be a valid justification to perform activities that it may be far more profitable to simply abandon. These processes can be found lurking all over, from the back office to items sales and legal allow into contracts with little thought that generate massive implementation and support costs that make the underlying contract far less lucrative. While you may not win friends initially as you attempt to stamp out waste, the economics are too compelling to ignore, especially when compared to staff reductions and penny pinching.

About

Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent ...

7 comments
mwclarke1
mwclarke1

Not allowed to speak up and criticize any existing process, person or the way things are being done or will be labeled as not a team player and have to take sensitivity classes :-(

CharlieSpencer
CharlieSpencer

Several meetings spread over several months to discuss how to deploy an application without giving the users Local Admin privileges. The money wasted in the meetings could have been used to hire a temp dedicated to this function, and he or she would have completed the installs in less time. (The app still isn't deployed.)

Jellimonsta
Jellimonsta

The saddest thing is that this even needs to be publicized for those in managerial positions. :(

jedmondson
jedmondson

If this were only an isolated case... I used to work for a large MFG'er that had no inventory/tracking of a particular class of production line support tools. These tools cost up to several million dollars each. When a replacement tool was needed, if they couldn't locate one easily, they just bought a new one. Geesh. Guess what happened when they finally had to cut costs to survive? Instead analyzing problems like th is, and addressing them, they just moved all their production to China. This is a prime example of US business leadership. They will take the easy way out instead of taking the intelligent way out. Too bad if it costs a lot of people jobs.

mchoffy
mchoffy

Thank you for the reminder that we may get so focused on an issue, we don't see the bigger picture. Moving forward on a project or not, should be closely looked at with a cost/benefit view.

four49
four49

Doesn't every SAP implementation end up like this?

four49
four49

There are many companies, in the name of controlling costs, that have a cumbersome and bureaucratic process for tracking business expenditures. It must cost about $75 in employee effort to process a $25 expense reimbursement request at some places I've seen. I think management is more concerned about feeling like they're in control than actually saving money.