Companies today encounter rapid, radical and near-constant changes while customer expectations towards quality and service are increasing. It has become imperative for IT to respond and adapt to those changes. The traditional role as a simple technology provider does not fulfill the need. IT departments feel huge pressure to adapt towards a lean, responsive and service oriented organization and to accept a new role of an enabler, working side-by-side with the business as a partner. A pre-condition for this step is to control the system and process landscape. A transformation of the existing IT is getting a critical success factor. The aim of this article is to explain fundamental reasons for investing in IT transformations, taking the telecommunications industry (Telco) as an example. It discloses wrong transformation strategies leading to costly failures and describes the possibility how to conciliate economic efficiency and the implementation of a social acceptable system transformation.
Companies using Information Technology (IT) know the challenge of managing existing systems, often referred to as “Legacy”. Legacy is a result of natural entropy which finds its origin in a parallel growth of the IT and the company activity. The complexity of legacy is proportional to several parameters: The choice of organization (internal, partially or completely outsourced). The choice of architecture and products (recurring maintenance and license costs). The speed of growth of the company in its first years. The amount of available investments for IT systems.
If there is a domain which is characterized by the mentioned parameters, it is the Telco industry. The initiation of an IT transformation gets necessary as soon as a complex legacy environment strikes a difficult economic environment. For the Telco industry, the reduction of margins and the de-regulation created an “explosive cocktail”. Some operators anticipated the situation. The majority find themselves today with their back to the wall and started, or plan to start a transformation of their IT. 2
The principal idea of a transformation is to reduce the costs for IT in proportion of the
company revenue, to reduce the IT/Sales ratio1. Today IT costs represent nearly 5% of
the telecom revenues (in other industries it is about 2%); there is a rising trend of the
costs, almost in line with the age of the operator [
The proportion of costs for information systems and the company revenue The TTM is the average time from the idea conception until the final rollout of the solution in the market. The average TTM came down from an industry standard of about six months in the middle of the years 2000, to an average of about three months nowadays.
Our definition: IT does not meet objectives for cost, time to market, functionality or quality
First option, transfer the problem. This option is not addressing the real problem
but transferring the responsibility to a specialised company acting as a “partner”.
Experience shows that outsourcing has only a positive effect on IT when a certain degree
of standardization has already been achieved [
3
There is a certain number of “routines” to achieve cost reduction objectives. Even if some of these routines might be efficient in the short-term, the mid-term impacts are important. Two dimensions influence the costs for the information system: The number of systems The total cost of ownership (TCO)4 per system.
4 The TCO is a combination of maintenance cost and recurring CAPEX for new products. It is
direct proportional to the economic efficiency of the supplier (internal or external).
Misleading strategy 1, reduce recurring costs via elimination. The first strategy we
want to refer to is what we call the « Easyway Approach”. It is about reducing the
TCO per system without neither changing the system architecture nor the system
structure. Although this is a necessary activity, without complementing this approach
with some structural changes the benefits will not be efficient in a long-term
perspective. We named this strategy the “Easyway Approach” as a reduction of cost is
fundamentally incontestable within a short-term perspective. This strategy is chosen by
IT executives who either have low technical knowledge, who lost their credibility
towards their business stakeholders or who are unable to sell any other strategy. The
most risky approach is to cut maintenance and support cost for IT components. Even
if there seem to be a measurable cost reduction, there are important side effects:
1. Creation of operational risks in different parts of IT with potential impacts on
business in case incidents occur.
2. Impossibility to calculate any business case for IT investments. In a situation of
low or even zero cost for the operation of an IT system it gets impossible to
calculate a return of investment (ROI), as there is no economisation achievable.
If operational risks are cumulated, the likelihood to end up in a business critical crisis
is increasing. IT executives having applied this strategy do not have any other choice
than to constantly resist the pressure to system changes to stay in control. The
dialogue with business stakeholders turns into a conflict. As a consequence, not many
CIO’s in Telco stay longer than four years in their position [
Misleading strategy 2, transform the business. The principle of the approach we
named “business transformation” is about adapting the IT whilst transforming the
business processes. This approach is driven by the postulate: the complexity of IT and
its costs are correlated to the complexity of the business processes and a high
variability of requirements [
The iterative, tactical approach. Our conclusion is to apply a tactical and step-bystep approach. This type of intervention implies imperatively a high IT executive implication as he is expected to go into operational details and adopt an entrepreneur management style. The objective of the tactical approach is to reduce the number of systems (complexity) as well as the TCO per system without creating major constraints for the business strategy execution. We distinguish the following essential key factors for the successful realization of the IT transformation delivery strategy: Leadership Measuring and Communication Delegation and “Professionalization” Planning and Piloting 4
Leadership. Since the industrialization of information technology there is a tendency
of a pure administrative and statistical management of IT. It is essential to not limit
the decision process to a distant interpretation of statistics. There is a component
purely linked to (technical) competencies, the capability for IT executives to judge the
efficiency of their teams and their suppliers. The ability to motivate is a critical skill
for anyone leading a technology team. Technical competence is a pre-condition to
convince engineers. A better understanding and actively shaping motivation can lead
teams to greater success. We claim that it is indispensable in a situation of structural
change of the IT to have executives being able to get hands on in technical and
operational details: An entrepreneurial management. The role of the IT executive should be
a partner role, influencing choices in technology, inspiring the team to take risks and
managing people toward peak performance by creating positive emotions and
motivation – by creating a vision.
Measuring and Communication. The CIO has to define a set of KPIs and
governance metrics to measure the performance of the IT department. Without a regular
reporting many important decisions are taken “blindly”, discussions with business
executives on a solid basis get prevented. In such a scenario delivery commitments
can only be given for small system improvements, the dialogue stays emotional. The
establishment and the debriefing of an agreed KPI catalogue is a key item for the
communication of the CIO. It needs to be regularly shared in public with all involved
colleagues and partners, not only to management teams. Bonus payments, personal
objectives and individual feedback need to be linked to the KPI objectives.
Delegation and Professionalization. One big challenge in IT is an aging workforce
[
Planning and Piloting. Starting an IT transformation, we recommend to first concentrate on the basics, the “things to get right”: 5 E2E = end to end, e.g. for technical domains like “Billing”, “CRM”, etc. 6 TCO includes the total costs for CAPEX and OPEX for a dedicated technical domain. Improve the level of confidence for your delivery capacities. This can be achieved by improving timelines and cost for delivering the basic needs. Quick wins can be realized by bundling activities, for example by introducing release management or commercial periods, by using agile methodologies and by defining a strict project delivery process with well-defined delivery artifacts. Project success has to be reproducible, at a high quality and independent of single human resources. Request formal management expectations and objectives for IT. In many companies, IT is considered as a commodity and a support function with no defined mission. It is impossible to create a vision for an IT transformation without clear objectives aligned with the company strategy. In case objectives are not provided by top management, we recommend determining the IT strategy by defining business assumptions shared with the business stakeholders, and therefore taking risk. Vision of the future IT architecture. The technical lines should participate in the definition of the vision of the IT transformation and the delivery strategy for each technical domain instead of the CIO imposing a transformation vision. It is mandatory to constantly align the business strategy with the transformation delivery strategy, ideally with each business unit. The project roadmap should consider transformation deliverables as a technical enabler supported by the business case of a business project. Such an alignment is only possible if there is a constant and efficient communication between IT and the business stakeholders. This alignment task is part of the responsibilities of the Portfolio Management. The role of the CIO is to follow the execution of the IT renewal plans in detail and to share the status in public.
Any investments or integration requests in IT, like purchasing third party services or tools, must be prevented. IT should be the exclusive provider of IT related services – and the only responsible entity for IT costs. Only in such conditions the CIO is able to guarantee a long-term view to preferred suppliers with positive impacts on costs and system complexity. In case a business project gets a higher priority than the transformation, this dependency has to be highlighted before the project kick off. The impact on the transformation objectives have to be explicitly approved by management. 5
By implementing the recommendations above, we achieved in the first year at one of the top three telecommunication operators in Switzerland: A reduction of recurring costs by 28%, of the external IT OPEX by 60%. An increase of project efficiency by reducing the TTM by 40%, the amount of critical incidents per week by 60% (reduction of post rollout incidents) and by introducing agile methodologies (25% of the projects scope delivered in agile mode). The business strategy has not been impacted, no business project got stopped nor has any freeze period been requested. No outsourcing or layoff was necessary to achieve the cost reduction objectives. The main critical success factor for the execution of what we call a “tactical transformation” is an entrepreneurial management with IT executives having the technical competences to control and lead changes in the necessary technical detail, as well as to motivate their technical teams and challenge the preferred suppliers and partners.
We call this approach socially acceptable as we recommend focusing on existing
company competences and people. Many CIOs put their attention mostly on technical
aspects while ignoring the people and organisational challenges [
Pre-conditions to recognise benefits are the measurement of performance based on shared KPIs, the implementation of an efficient organisation including a reduction of technical roles and the delegation of responsibilities with a strong link to personal objectives. To our experience, only the repartition of costs and their publication already drive behavior and performance and have an automatic regulatory effect. It is important to increase the perceived value of technical functions by constant trainings, a well-defined career path and a competitive salary level.
We see professional and centralized project and portfolio management as an indispensable activity to facilitate the interaction and expectation management with stakeholders, and to efficiently align the growth objectives with the technical vision of the transformation. Centralized project management is a major driver in implementing and respecting project delivery processes. Having technical lines or project owners managing projects create inefficiencies and is a potential for conflict of interests.