A typical large company (with US$10 billion in revenue and about 21,500 end-user equivalents) could save up to $36 million annually by achieving world-class performance levels in IT, freeing resources to focus on higher-value activity and innovation, according to new research from The Hackett Group, Inc.
The research estimates that world-class IT organizations now deliver services at 22 percent lower cost than typical companies, and operate with 9 percent fewer staff, in part by reducing technology complexity and realigning talent.
The research also finds that talent is emerging as a major challenge to improved IT performance. Offshoring and other factors are causing limited availability of staff with skills that are in high demand, and are likely to create a bottleneck to raising the value contribution for many IT organizations.
"IT has become a key driver of the innovation-based growth strategy that most companies are relying on," says The Hackett Group Vice President of Research Erik Dorr.
Dorr notes that "digitization,"' the explosive growth of data volume, and the integration of technology into virtually every element of the corporate world has created a tremendous opportunity for IT to have a positive impact on the bottom line.
"We believe that unlocking the value of IT throughout the entire value chain is critical for companies that wish to dominate their industry in the future," adds Dorr.
In addition to operating at lower IT costs and with fewer staff, world-class organizations also allocate costs very differently than their peers, the research found.
These companies spend nearly 30 percent more of their IT budget on build activities that contribute more to improving business processes, and nearly 13 percent less on day-to-day run activities.
Overall, world-class organizations universally reflect two key IT strategy themes, the research found. They operate with lower technological complexity and are better able to realign technology talent to support business strategy.
Managing IT complexity
World-class IT organizations have dramatically simplified and streamlined a wide range of their operations, according to The Hackett Group's research. This includes utilizing 80 percent fewer technology platforms and 37 percent fewer applications. They also see dramatically lower levels of hardware and software complexity.
In addition to helping achieve cost reduction goals, the research found that complexity reduction also helps companies achieve much higher levels of IT effectiveness.
This complexity reduction has an impact that reaches far beyond IT, the research found. It helps reduce process costs in other key business operations areas such as finance and procurement.
The research found a very strong correlation between with low application architecture complexity and both reduced operating cost in these functions and reduced technology cost.
Companies aspiring to world-class performance should pursue several best practices to manage IT complexity, the research recommends. They should strengthen enterprise architecture governance to drive the use of standard technology platforms and common data definitions across operating units.
Equal emphasis should be placed on cost and flexibility/agility when evaluating solutions.
Companies should consider ways to increase their use of cloud-based SaaS applications, enterprise versions of consumer applications and Bring Your Own Device policies to reduce the number of non-strategic platforms and improve end-user satisfaction.
But care is required, particularly with BYOD, where many companies find it difficult to generate cost savings, cautions the report.
To achieve world-class performance, IT organizations also realign their technology talent - including adopting talent management best practices and mobilizing technology talent beyond the boundaries of the function's organizational silo.
In several key areas, The Hackett Group's research finds that skills may become difficult to acquire over the next few years, as a result of increasing demand and limited availability.
The problem is accentuated by the trend towards offshoring and outsourcing, which have largely eliminated the internal "farm system" through which IT departments developed new talent.
These talent issues are likely to make it significantly more challenging for IT organizations to increase the strategic value they provide. Among traditional IT skills, security expertise, emerging technology, and application development/configuration skills are all expected to become more difficult for IT organizations to acquire.
In several other skill areas which are required for IT organizations to partner more effectively with the business, a similar trend is expected. These areas include data and strategic analysis, business relationship management, and technology leadership roles.