It’s Your Buck, Make the Most of It

With IT becoming more centralized everyday the next logical step is to get rid of all those different applications from different vendors that form the spider’s-web of many large IT networks today.

It makes sense. If you have seven (or seventeen) different vendors supplying essentially the same functionality, you will save money by standardizing on just one of those vendors for all your needs.

But, there is a counter-intuitive surprise here. Just picking one vendor for as much of your infrastructure or functionality as possible has only limited benefits. The real savings come into play when data standards are also enforced so a widget, is a widget wherever it shows up in the system, said Dave Hebert, director of Executive Advisory Services at the Hackett Group.

“If I just look at standardization or a high degree of common applications, I don’t see that great of an impact,” said Hebert. “When I look at the two together … we consistently see about a 23 percent reduction in cost.”

Tie in business process streamlining and you have a win, win, win situation, said Glenn Gifford, a partner in Accenture’s ERP Practice.

“There’s significant, tangible benefit to have common processes and common data across the enterprise,” he said. “What we haven’t seen is a pure consolidation project that can stand on its own as just consolidation— without all the process improvements—as a viable business case.”

Side Benefits

If this weren’t enough of an incentive to at least consider simplifying your infrastructure, there is also the benefit (if you are a big enough customer) to leverage your vendor’s development processes. In other words, you can have their development teams work on your problems so that the next time you upgrade or patch, your ideas and needs will be incorporated into the new releases.

This is exactly what Agere Systems Vice President and CIO Charles Sperazza does now he has standardized on Oracle. If Oracle makes it and Sperazza can use it, chances are pretty good he is going to buy it.

“If we’re going to do this, let’s do it right. Let’s do it with no customization and also let’s do it with the idea of how can consolidate more of our apps onto Oracle,” he said.

If an application or tool set isn’t made by Oracle, then Sperazza will look for vendors whose products integrate nicely with Oracle. So far, Sperazza has spent $30 million on Agere’s ERP upgrade to 11i and doesn’t expect to recoup this initial spend for some years.

Even so there are other, hard-dollar benefits. Since going live in October 2005 with 11i, Sperazza has reduced the developer staff needed to do the custom code work for the old Oracle 10.7 ERP system, which was so customized it might as well have been an in-house legacy system.

With 30 fewer people on the payroll, Sperazza can expect to save around $2 million per year.

“I’m able to do a lot more with a lot less people because they are very good at using one tool set,” he said.

Then there are the productivity gains that come from better reporting, said Accenture’s Gifford.

“If all the systems aren’t aligned from their master data perspective, I don’t have visibility into how much were spending on pencils in every part of the world,” he said. “So there’s benefits from being able to analyze the information that are going to occur from what we call harmonization of the system.”

Still not enough incentive? How about being able to leverage new technologies more cost effectively and integrate them more seamlessly? How about the TCO reduction inherent from reducing complexity and reduced spend on servers, maintenance contracts, licensing fees, etc., etc.?

“The simplification of the application landscape inherently implies a lower future capital spend requirement,” said Gifford. In other words, you save money in the long-run.

And then there’s always the more personally gratifying benefit of having “one-throat-to-choke” when things go wrong.

Okay, but?

But, as with all things IT, not all is a bed of roses.

Standardization requires a great degree of trust. Choose the wrong vendor, for example and, when they go out of business, you might be looking for a job.

If you are not particularly good at relationship building, for example, then this approach could backfire, said Agere’s Sperazza. A former Oracle exec, Sperazza is confident in his relationships with the current team. If he needs something special he has access. If you don’t, this could cause problems.

Then there is always the Microsoft syndrome: being tied to a vendor that eventually takes over the market can lead to you getting stuck with the bill, inferior products or an indifferent partner. All bad news for you.

“That’s the role of the CIO, that you have very good, strong relationships with the vendors and you get as high (in the organization) as you can,” said Sperazza.

Then there are governance issues that may not be a problem today but, as the number of users and business processes dependant on the same infrastructure goes up, so to does the need for strong governance, said Hackett’s Hebert.

Pushback from line-of-business managers guarding their turf and set in their ways is also something to keep an eye out for. And your flexibility can suffer as well, but, overall, the benefits outweigh the drawbacks, he said.

“I think where IT organizations are at now is trying to straighten out a lot of the sins that have been done (in the past),” said Hebert. “IT people are working long hours, long days, long weeks and their trying to fix some of those sins verses potentially driving more value to the business side.”