May 15, 2000, Volume 3 - Number 8

IT: Know Thyself

An IT knowledge repository can provide the tactical and strategic advantage of knowing your IT organization's current and required capabilities

By Thomas Flohr

Although more companies are devoting resources and effort to capturing and sharing enterprise intellectual capital, they often overlook a vital aspect of corporate knowledge management: the critical need for an IT knowledge repository for CIOs.

Most CIOs will admit they do not have a complete view of their global IT universe, including hardware, software, and services (such as training and consulting expenditures). The more complex and global the company’s operations, the tougher it is to stay on top of IT: Which plants and offices are using which brand of personal computers, with which microprocessors, and which software applications? Who has Internet access? And how much are they paying for it? Which customized applications are running at which locations? Who’s purchasing maintenance services and on what terms?

IT organizations in every industry are facing major changes in their roles and responsibilities, and knowledge repositories could help them make successful transitions. Gartner Group predicts that by 2003, 75 percent of IS organizations will refocus their duties on brokering IT resources for their companies’ various business units and facilitating business-driven demands, rather than being the direct providers of IT services.

Under this new structure, the CIO’s direct control over IT budgets and governance will decrease. But he or she still will be expected to obtain the right services at the right prices on behalf of the business units as well as corporate operations. The scope of IT decision implications will continue to grow, too. CIOs will remain responsible for application deployment to support e-business, integrate mergers and acquisitions, and empower other enterprise initiatives — even as these implementations grow more complex. In other words, CIOs will be accountable for results even though they won’t have complete control over how things get done or who does them.

At the same time, with less direct responsibility for providing services, management will expect the IT organization to concentrate on becoming a core business engine, or change agent, driving innovation and creating new IT-based value propositions in e-commerce, supply-chain management, and other areas. These IT-driven opportunities will help shape and achieve the strategic goals of the company — and make CIOs full business partners, not just technology experts that support other business people.

To make these bet-the-business decisions, CIOs need to fully understand what capabilities and systems reside where within a company as well as what capabilities and IT systems it will need to implement new enterprisewide applications. The solution for developing and maintaining this deep understanding without having direct control is an IT knowledge repository. Gartner Group estimates that more and more companies will look to invest in strategic and CIO-level services. In addition, approximately 60 percent will use some form of decision-support service by 2002.

Optimizing IT’s Value in Achieving Business Goals

Here’s an example. Dalkia, a subsidiary of Vivendi, has grown into Europe’s leading heating-systems management contractor, France’s leading independent power producer, and a top-ranking European facilities-management contractor through a series of mergers, acquisitions, and divestitures in recent years. With ongoing organizational change, coupled with rapidly evolving technology, the company was having a very difficult time keeping tabs on its IT infrastructure and needs. For example, when selling a company, Dalkia wants to be sure it understands exactly what assets it is surrendering and that its value is captured in the sale price. Similarly, when acquiring a company, it wants to ascertain what assets, service, and training it needs to integrate the new company into the larger enterprise, and what they will cost.

With its environment in a constant state of flux and no infrastructure tracking in place to determine which technology was acquired along with each subsidiary, Dalkia also was unable to accurately charge technology costs back to the appropriate divisions. Instead, its chargeback process was characterized by time-consuming discussions that led to “round-number” chargeback figures.

Dalkia started to address these problems working with an outside company to create an IT repository that contains information about asset purchases, software applications, vendor assessments, competitor information, and other infrastructure costs. As a result, the company now knows the state of its technology environment and costs in each region, helping management better understand where changes are required to reduce expenses or to improve technology implementation. It has also deployed controls to accurately capture technology costs and charge them back to the appropriate subsidiaries. As an adjunct benefit, Dalkia was able to re-deploy two full-time equivalent IT staffers who were supporting end-user departments to more strategic activities.

As Dalkia has discovered, developing a comprehensive world view of IT assets, software, and services is the foundation for understanding how to optimize a company’s IT spending, operations, and capabilities. Without this knowledge, few companies have any confidence in their ability to track, let alone quantify, the value that IT delivers to their organizations. For example, a Gartner Group survey found that through 2002, fewer than one-quarter of all application projects will result in hard, monetary benefits that exceed the cost of implementation. Without knowing where your company is, you can’t figure out where you want to go, or even how to get there.

An IT repository may be particularly helpful for companies in rapidly transforming industries such as telecommunications and financial services. It would also be advantageous for firms that are active in mergers and acquisitions, fast-growing enterprises that can barely keep up with business, and early adopters of new technology. These companies don’t have the time or inclination to create and follow cumbersome asset-tracking methods — but they do need to show results from IT investments, which an IT know-ledge repository could put at the CIO’s fingertips. In addition, an IT repository could help some manufacturers and other firms that are playing catch-up with technology confidently assess their situations and map out workable strategies to move forward.

The Ideal IT Knowledge Repository

To provide maximum value, an IT know-ledge repository should comprise several critical components. For starters, it should include a worldwide inventory of all technology equipment, software, and services. (See Figure 1.) That information should be updated continuously as new items are added or subtracted.

To ensure the company isn’t focusing simply on internal operations, a repository should also gather market information that helps managers understand how the company stacks up vs. competitors. In essence a data mart that draws from sources containing customer and market information, the repository should include comparisons with best practices in the field, regardless of industry. Furthermore, it should offer a comprehensive, independent assessment of available technology options and the strengths and weaknesses of providers, plus details on the associated costs.

FIGURE 1 It knowledge repository benefits.

Making It Work

Of course, if collecting this information were easy, companies would already be doing it. One relatively painless way to assure accurate, timely data input would be to tie it to the organization’s IT procurement process. The procurement operation would need to be accessible to all purchasers of IT assets and services. Such a decentralized approach to access will become even more important as business units around the world take on more responsibility for IT.

An online, or e-procurement, capability is an obvious way to reach everyone who needs to use the system, regardless of location, currency, time zone, or language. The system could include all approved vendors, configurations, prices, and other pertinent requirements. In fact, you could design it to limit procurement of software, hardware, and services to those that meet company standards. Then, as hardware or software comes in the door or services are delivered, purchasers across the globe could deposit information in a database that is part of the repository and accessible through a Web-based portal.

The example of Schneider Electric, the world leader in electrical distribution, industrial control, and automation products, systems, and services, demonstrates the promise of such a system. The company, which operates in 130 countries, works with a variety of lessors and vendors. It typically has as many as 400 different contracts in place among the multiple providers. The sheer complexity of this process, combined with the absence of a program for tracking IT assets and expenditures, led to significant confusion, duplicative processes, and unnecessary costs.

Consequently, Schneider implemented a procurement-based IT repository managed by an outside vendor. Now, managers can easily check and approve purchase requests, thereby significantly streamlining the company’s overall acquisition process. In fact, the company has sliced the average time it takes to procure assets from a month to no more than 10 days. The system also is designed to let the company track its assets by location, department, cost, age-refresh schedule, and other criteria, giving Schneider a better understanding of its IT infrastructure.

In addition to linking the database to procurement approvals, another way to ensure all IT purchasers deposit the information in the repository is to extend the system to billing, chargebacks, and payments. A major manufacturer that opted for this route has established a process to tie every IT expense to a specific asset. Each asset has up to 22 cost lines, such as hardware costs, software costs, installation costs and help-desk costs, as well as costs associated with services provided by its internal IT group. As part of the chargeback service, it then invoices each of the subsidiaries for assets related to their operations.

You could also design a system that links procurement and billing so that no IT-related expenditures are paid unless invoices are generated through the system. (See Figure 2) Not only will that guarantee compliance, it will consolidate the entire acquisition, billing, and payment process, saving time and money.

FIGURE 2 E-procurement and billing process.

People Challenges

Clearly, these systemic changes can result in a streamlined approach and access to accurate, relevant data that ultimately benefits everyone involved. But they may require a buy-in period among the IT staffers, especially if the operation is decentralized and lacks uniform procurement standards.

One manufacturing company that was building an IT repository as part of a larger reengineering effort ran into this challenge. The company wanted to improve operations and leverage its global reach, so it set out to rein in its highly autonomous subsidiaries, including IT operations. But in the course of collecting the initial cost and operations information for its IT repository, the manufacturer recognized that the planned move to a highly centralized IT approach with predefined standards and processes was resisted by many of its units around the world.

A key reason was that the local subsidiaries saw only short-term costs such as moving to standardized equipment. They did not see the long-term advantages: the ability to leverage a global presence, such as negotiating favorable rates for technology products and services. So the manufacturer took steps to smooth the transition. For example, rather than moving from a largely distributed environment to a completely centralized one, it opted to centralize management at the continental level, establishing IT managers for Asia, Europe, North America, and South America. This approach guaranteed regional input into decision-making while helping gain acceptance for a single, global IT procurement and asset-tracking system.

Justifying the Cost

The approach of bundling procurement, billing, and payments can generate immediate benefits and give CIOs a strong return-on-investment case for building an IT repository. Schneider has drastically accelerated its procurement process while Dalkia now generates accurate chargebacks with no hassles, freeing up valuable IT staff time for other projects. Similarly, a major European company, which has more than 1,100 IT professionals devoted solely to handling technology procurement, estimates it could reallocate one-third of that staff to more strategic activities if it created a procurement-based IT repository and outsourced its management.

The ability to quantify benefits will certainly help the CIO win the blessing of the CFO or operating executives for investing in an IT knowledge repository. Too often, CIOs have been unable to forecast or prove solid return-on-investment figures or other metrics to justify technology initiatives, although such measures are required of other business managers before they receive funding for new projects. Being able to more fully speak the other executives’ language — and meet similar funding hurdles — will go a long way toward assuring acceptance of the repository as well as the budget to build it.

While all these gains are unquestionably advantageous, a true knowledge repository can confer even more strategic benefits. In this case, simply gathering data is just a first step. To turn this raw information into knowledge, the CIO needs a mechanism to evaluate the data, identify patterns or anomalies, and spot trends. Collecting, consolidating, and then analyzing both internal and external information, in real time, would produce actionable knowledge that clearly would help CIOs and other IT decision makers to reach better conclusions and lead to more IT-driven initiatives that can succeed in advancing corporate goals.

Using asset-tracking and expenditures information extracted from its knowledge repository, Dalkia has developed a thorough understanding of its overall IT investments, as well as costs and technology status by specific location and function. The company, which operates in 26 countries, can identify where operations need to improve and costs contained to support business and financial objectives.

So how might Dalkia turn this information into better decision-making? For one, if it were planning to roll out a major new application across all of its locations, it could quickly analyze which locations need technology upgrades to cope with the new application — minimizing the headaches, extra costs, and lost productivity associated with problem implementations.

In general, coupling the company’s data with market information from the knowledge repository can lead to greater insight and better planning. One area that CIOs would see an immediate benefit is in more accurate spending forecasts, providing greater predictability and certainty of their costs. To help achieve this goal, companies might design their repositories to collect regular technology pricing updates as well as technology news and analysis. They also might gather examples of best practices, so the CIO can benchmark his or her company. By evaluating all this information, CIOs would be better prepared and more confident in setting the direction, timing, and pricing of technology migration strategies.

The ability to improve spending forecasts would minimize surprise expenditures and add substantial credibility with the CFO and other executives when the time comes to develop annual budgets. It also could lay the groundwork for achieving or even setting the bar for best practices and building more satisfying vendor relationships.

The repository also could be instrumental in helping CIOs quantify the value of IT initiatives. With the wealth of accurate and timely data available at the click of a mouse, CIOs could easily run cost-benefit analyses, including direct and indirect technology costs.

Reaping Rewards

As technology becomes increasingly ingrained in the fabric of business, the importance and usefulness of an IT knowledge repository becomes increasingly compelling. Without it, CIOs will be forced to continue estimating and even guessing too much of the time about such fundamental matters as what locations have what technology, what technology those locations actually need, and in general, what to buy, when to buy, and what price to pay. And as CIOs lose more direct control over the delivery of IT services, their grasp of their company’s IT environment will only become less accurate. Worse, without this basic knowledge, they will be at sea in determining how — or if — all these IT investments will pay off in strategic value for their companies.

It’s not a situation that companies can afford to continue. Too much, including existence itself, is riding on the outcome of critical IT-driven initiatives. But a technology knowledge repository could go a long way to helping companies truly understand their IT universe and making the most of it.

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Thomas Flohr (tflohr@comdisco.com) is president of IT control and predictability solutions at Comdisco Inc., a global technology-management provider.