Monday, November 24, 2014
Cost of inefficiency – Penny wise and Pound foolish !
The CIO was doing quite well; he had good credibility within the company as well as outside with peers in the industry. He wasn’t the flamboyant type, neither was he a pushover; he participated in industry discussions and was seen as the strong, silent and effective leader. His company had invested well in IT; they were not early adopters, neither laggards, a balanced view of technology investments and business was happy with what they had. The company was growing faster than the market and placed well in the industry.
Working with business leaders and the CEO who understood the value of IT, he managed the budgets pragmatically. The CEO gave him enough latitude to work independently and he kept abreast with the technology curve to field any challenge thrown at him. IT vendors were happy to work with him as he was straight and forthright in his approach telling it as it was. His team was made up of business focused professionals who had invested their careers in the company. The turning point for him was when the CEO moved off to greener pastures.
The new CEO had grown through the ranks; he restructured the organization and the CIO found himself under the tutelage of the CFO. An ostentatious man, the CFO never lost an opportunity in the game of one-upmanship. He met the IT team and vendors with visible disdain with a clear message that the golden era of IT spends was over. The mantra set by the new CEO was to deliver a better bottom-line and he, the CFO was going to leave no stone unturned in his quest. The budget shall be cut by 20% with immediate effect.
The CIO a logical man attempted to discuss the irrationality of the step as it would impact operational efficiency. IT budgets did not have any buffers, the CIO never needed to pad his budgets with the trust he had from the earlier CEO. Support charges for ERP, CRM, and office automation licenses apart, the network links to global offices and sustenance of support services for users and data center took up the larger part of the operating budget. He had limited choices and began the process of rediscovery for cost control.
Negotiations and calling in favors he was able to bring down operational cost by 10%. The balance appeared unachievable and he sought help from the CFO to evaluate options. Why does everyone need an expensive license ? Why do we pay so much on software maintenance contracts ? We should move to cheaper solutions, embrace open source, bring in garage mentality into our team. Move to lower cost options on email, start using common ids at remote locations, move to cheaper hardware; and make sure the “management” does not get inconvenienced. Thus the CFO spoke !
His protests on operational impact being overruled, the CIO got down to execution; mail was migrated to a lower cost option of a popular personal public free mail services’ corporate offering. Onsite engineers were reduced at locations, development work brought in. The change was seen as a retrograde step across the enterprise. The trickle of problems from the alternative solution slowly became a barrage which had every function head tearing their hair in frustration on lost functionality and team efficiency.
Slowly and steadily the noise ebbed when people realized the change was driven by the new CFO; citing business impact some teams sought and received approvals to move back to the older system. Soon enough everyone was attempting to go back to the past, though not very successfully. People learned to live with the new, factoring in the inefficiency into their work schedules, discussing and debating the gap in communication. It was fairly evident that the resultant reduction in performance cost the company a multiple of the savings.
Do organizations measure such a consequence where deployment of a new tool or process has an adverse impact on the outcomes ? Consultants tout their new success when the change is even slightly positive; I haven’t seen instances of the adverse impact or degraded efficiency being elevated or discussed openly. I believe that this costs enterprises significantly almost to the tune of 20% reduction in productive time. Change is rarely sanctioned due to costs involved which is typically a fraction of the lost hours. How long will pennywise and pound foolish continue ?
It’s an opportunity for the CIOs to take a stand and lead the way !