Many IT leaders admit their spending is too heavily weighted toward keep-the-lights-on projects. Here’s how to tip the balance.
Social! Mobile! Big data! BYOD! You probably already know what your company’s executives most want to see from your IT organization. But unless your company is very new, or you’re unusually lucky — or a very, very good manager — more than half your time and resources are spent, not on innovative projects, but on “keep the lights on” activities whose sole purpose is to prevent existing systems from breaking down. And sometimes the percentage is a lot higher than that.
“I’ve seen companies where it’s 80% or 90% of the IT budget,” says Columbia Business School professor Rita Gunther McGrath, who examined this issue for her book The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business. “I think it should be no more than 50%,” she adds.
Most CIOs would agree with her, but can’t achieve that 50-50 split in their own budgets. In a recent Forrester Research survey of IT leaders at more than 3,700 companies, respondents estimated that they spend an average 72% of the money in their budgets on such keep-the-lights-on functions as replacing or expanding capacity and supporting ongoing operations and maintenance, while only 28% of the money goes toward new projects.
Another recent study yielded similar findings. When AlixPartners and CFO Research surveyed 150 CIOs about their IT spending and their feelings about IT spending, 63% of the respondents said their spending was too heavily weighted toward keeping the lights on.
Why So Difficult?
If no one wants to spend such a huge portion of IT’s funds just to run in place, why does it keep happening? One explanation lies in the term “keeping the lights on” itself: Turning the lights off isn’t an option. “It’s the ante that allows you to hold on to your job,” says Eric Johnson, CIO at Informatica, a data integration company in Redwood City, Calif., with annual revenue of $812 million. “If the systems are down and the phones aren’t working, no one will care how innovative you are.”
Of course, new projects are very important, so the challenge is to do both. “CIOs are striving to be business executives, truly driving value for the organization,” Johnson says. “That’s why there’s so much emphasis on keeping the lights on while still finding the budget to drive innovation.”
A bigger problem has to do with the traditional approach to IT at most companies, where techies who are expected to abide by the principle that “the customer is always right” find themselves creating unwieldy systems in an ongoing effort to give the business exactly what it asks for. Keeping those systems running is usually difficult, time-consuming and expensive. “I’ve worked with a lot of companies where the CEO says, ‘I want you to do this, this and this.’ The CIO says, ‘That’ll be $5 million.’ The CEO says, ‘Do it for $3 million.’ So it’s patch, patch, patch,” McGrath says. That approach creates “technical debt” — something you’ll have to go back and pay for later — according to Bill Curtis, chief scientist at CAST, a software analysis company headquartered in Meudon, France, with annual revenue around $47 million.
Similar problems arise when IT tries to satisfy business needs too quickly. “Sometimes these things were built as ‘Let’s just get something up and see how it works,’” Curtis says. “Things that were designed as a demo suddenly have to grow. Or even if something was designed appropriately for what they thought would be the use, people kept adding new requirements and features until it became a kludge.”
Perhaps worst of all is the tendency to customize licensed software in an effort to fulfill business requirements — whether or not those requirements have any real bearing on the organization’s goals or success. “We talk about business capability — the list of things a business needs to do to be successful and achieve its goals,” says Nigel Fenwick, an analyst at Forrester Research. “Out of 30 high-level capabilities, maybe two or three are differentiators.” When senior executives understand this well, he says, they encourage IT to focus on those key areas and seek standardized, easy-to-maintain solutions for everything else.
Unfortunately, such understanding is rare. “It’s hard to get the CEO to stand up and say, ‘This is the way we’re going to do it,’” Fenwick says. But if the CEO doesn’t do that, he adds, “every little department will want to customize the technology to make their part of the business run more efficiently — and so they should.” After all, each department is being judged on its own efficiency, and anything that can make it run better is a good thing — from the point of view of the department’s managers. But the approach leads to systems that are difficult and costly to maintain.
“Over the past 10 to 20 years, we’ve plowed millions of dollars into software customization to support generic capabilities,” Fenwick says. “It has made IT more complex, made interfaces more difficult, reduced IT’s agility and added cost.”
There’s one last reason it can be difficult to contain keep-the-lights-on costs: You may become a victim of your own success. “We’ve determined that it’ll be pretty tough to get to 50-50,” says Peter Forte, CIO at Analog Devices, a semiconductor maker headquartered in Norwood, Mass., with annual revenue of $2.6 billion. “The reason is, the more successful you are on the right-hand side, that drives more activity to keeping the lights on. Every new system we deploy is a system that needs to be maintained.”
Here’s a look at strategies that can help CIOs who want to spend less on keeping the lights on and more on innovations that will help the company reach its goals.
Virtualization
If you haven’t gotten around to virtualizing servers, you may find that doing so is an effective way to cut keep-the-lights-on costs. Forte discovered that when a normal cyclical low in the semiconductor industry coincided with the worldwide economic downturn of 2009. “We lost 30% of our revenue almost overnight,” he says. As a result, IT had to quickly cut 30% of its costs, leading to significant layoffs.
At the time, Analog Devices was about 45 years old, with the legacy infrastructure to prove it. “The first thing we did was calculate what percentage of our investment would be needed to keep the lights on,” Forte says. “It was in the low 80s.” For a technology company whose success depended on its ability to rapidly bring new products to market in large numbers, that was not acceptable. So IT launched a three-year effort to shift that balance. Today, Forte says, Analog Devices spends 62% of its IT budget on keeping the lights on and 38% on growing the business. That’s not 50-50, but it’s a meaningful improvement.
There were several elements to the program, but virtualization was one of the most effective. “We moved from an environment where we were 100% physical to over 90% virtual,” he says. That saved several million keep-the-lights-on dollars that the company poured back into innovation. At the same time, Analog Devices switched to a service catalog approach, automating such tasks as resetting passwords for employees — something that help desk staffers previously did over the phone about 1,800 times per quarter. “Those technologies swooped in and saved us,” Forte says.
Cloud Computing
For many companies, moving services to a public, private or hybrid cloud also has a huge impact on costs. Johnson estimates that Informatica spends about 60% of its IT budget on innovation and only 40% on keeping the lights on, and heavy use of the cloud is one reason why. “We have more than 30 enterprise software-as-a-service operations,” he says. “We have a mantra: ‘Cloud first.’ Can we do it with a hosted cloud solution? If not, and we have to buy it, that’s fine. [But] building it custom is always the last resort.”
And security concerns shouldn’t keep you out of the cloud, Fenwick says. Business executives “need to look at how much it matters if something is running in a data center 100 miles away and owned by the company versus one that’s 100 miles but owned by another company,” he says. “People don’t really understand the relative risk of someone hacking into our data center compared with Amazon’s data center.”
Standardization
Eliminating customization for any function that isn’t a key differentiator can substantially reduce keep-the-lights-on costs. “People have done a lot of the easy stuff,” Fenwick says, referring to the fact that virtualization and cloud computing have already had big impacts on many IT budgets. Standardizing software is the next thing you can do to meaningfully cut costs.
But while standardization can create great efficiencies, it can be a hard sell. That’s because, unlike the cloud or virtualization, standardizing — whether on SaaS or off-the-shelf applications — requires users to change how they do their work. “If you’re buying something off the shelf, it’s by definition not going to be designed for your processes,” McGrath says. “And once you start tinkering with it, you lose the benefit.”
The key is to have the discipline to say, “We are not going to customize this…. We’re not going to make changes that will make it more difficult for us to be agile.” Fenwick says.
Johnson says standardizing both technology and business practices helped Informatica get to the point where it spends 60% of IT’s budget on new initiatives. “You make sure you don’t have 10 ways of doing something,” he says. “You have one way of doing it.”
Planning Ahead
One thing that makes keeping the lights on much more costly is the need to make unexpected repairs. You can save money — and lead a more pleasant life — if you plan ahead and prepare for system maintenance needs.
For The Reinvestment Fund, a Philadelphia-based community development financial institution that manages $700 million in funds, automatic monitoring of the IT infrastructure’s operations has made a huge difference, says CIO Barry Porozni. “Upgrading our monitoring system was one thing that really made an impact,” he says. “It probes into applications and devices so we know proactively if email is down — we don’t need users to come to us. Same thing with data storage — we’re very data-intensive, and it tells us how close we are to running out of space.”
The new monitoring system has freed up a lot of time, Porozni says. Previously, he and his staff had to go through a checklist first thing in the morning and last thing in the evening to make sure all systems were functioning well. Adopting the new technology and other steps have helped cut the percentage of the IT budget devoted to keeping the lights on from about 80% to about 70%, he says, and he aims to get it much lower.
For Michael Leeper, director of global technology at Columbia Sportswear, a Portland, Ore.-based outdoor clothing retailer with $1.67 billion in annual revenue, planning ahead also means not doing anything you’re likely to regret later. “Hopefully, you’ve done your homework so you don’t have to create short-term solutions just to solve a problem,” he says. At the same time, though, he’s careful not to turn down requests from business people.
“Inevitably, you have to do something you don’t want to do just to make people happy,” he says. When that happens, it’s important not to leave the quick fix in place, but to go back and improve it. “Once that first [request] is up and running, you start figuring out how to fix it,” he says. “We’ll show the business what they’re asking for, and then go fix it in the background. You don’t want to start building on something that’s bad.”
Planning ahead also applies to projects designed to grow the business, so Leeper and his team are in the habit of piloting new projects before anyone asks for them. “Once the platform’s stable and current, the next thing we do is make a small investment in technology we may not need immediately,” he says. One example is virtual desktops — Leeper saw that there might be a need for them so he implemented some to learn about them. “Then when the business did come to us, we didn’t have to tell them to wait,” he says.
Selling Your Vision
Marketing your ideas for taming keep-the-lights-on costs, both within IT and to the company at large, is an important step. Indeed, as Analog Devices went through the painful process of recovering from layoffs and then bringing its technology up to date, Forte used a simple phrase to tell both his IT colleagues and Analog executives what the team was up to: “Shrink the footprint, shift the balance [from keep-the-lights-on toward innovation], optimize services.”
“The importance of communication can’t be overstated,” he says. That was especially true when he took over as CIO in 2009. At the time, customer satisfaction with IT was low. “I kept telling people, ‘Hang in there, we’ll get things in order,’” Forte recalls. “I spent time with every vice president in the company, telling the same story: Shrink, shift, optimize.”
By staying relentlessly on message, Forte gave both the business and his IT group a good grasp of the priorities and what still needed to be done. “I was giving a talk at a local college about business-IT alignment,” he says. “I said, ‘You can walk up to anyone who works in IT at Analog Devices, ask them what the three most important initiatives are for IT, and you’ll get the same answer.’” One student happened to have a friend working at Analog, so she called her friend to test Forte’s assertion. Sure enough, when asked for the top priorities, the student’s friend answered, “Shrink, shift, optimize.”
Still, though you may have a grand vision for bringing down keep-the-lights-on expenses, Leeper advises starting out with small steps. “You’ll never get anywhere if you try to do it all at once,” he says. But it’s important to start somewhere. “Pretty soon, you begin accomplishing little upgrades with little payoffs,” he says. “And then one day you’ll look around and think: ‘Hey, I did it all.’”
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