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How IT can create business value

December 15, 2009 Leave a comment Go to comments

The technology market is always evolving, and today is no exception. Companies are reassessing the way they consume IT in light of the growing commoditization of IT and the emergence of enterprise-grade software-as-a-service (SaaS) solutions. SaaS can help enterprises move away from creating expensive customized software by offering off-the-shelf standard software that fulfills the majority of business needs.

We recognized this shift back in 2007 when we looked at how IT was being delivered and resourced in Siemens. Back then over 85% of our IT budget was being spent on keeping our existing systems running, leaving only 15% for developing innovative solutions for the group. We wanted to significantly rebalance this to both generate savings and channel more money into innovation. It wasn’t just the technology that needed to change; we also needed to prioritize our resources and identify where IT could help the business or give us a competitive advantage. 

More flexibility at a competitive cost for IT infrastructure

A review of our IT showed that conflicting demands across the business had created a heterogeneous, expensive and inflexible infrastructure. Our portfolio was not based on market standards in many areas, and we had a multitude of contracts and weak purchasing power with a wide range of suppliers. We were too focused on bespoke solutions, which required extensive customizing, rather than taking advantage of cheaper commoditized solutions, particularly in areas where IT wasn’t a differentiator.

We needed to align our IT infrastructure with the business and meet business objectives with all IT solutions, whether increasing sales or reducing costs. To get there required radical thinking: rather than devising and enforcing expensive and complex standards to which IT solutions should conform, we would choose the out-of-box solutions that were best able to meet our business needs.
 
The commoditization of IT solutions is a blessing for enterprises, because its gives us the potential to cut the cost of IT without affecting performance. For example, the use of Web mail services, such as Google Mail and Hotmail, means that there are only minor evolutionary stages left in terms of the products themselves, and I could envisage Siemens getting its email platform from a service provider in a few years time. This trend will accelerate as the business model becomes more mature and becomes prevalent throughout the IT infrastructure.

Rapid deployment through SaaS

On-demand models, such as software-as-a-service (SaaS), offer much shorter implementation times, and there is no risk of changing requirements during the “development” phase. They allow us to draw on the expertise of specialized providers whose out-of-the-box service is often of higher quality than a comparable bespoke IT solution. SaaS systems are also cheaper than bespoke solutions and offer the flexibility to scale up and down to match fluctuations in demand.
 
We experienced these benefits first hand by deploying an on-demand CRM system across the group to replace our existing on-premise CRM system. Our legacy software was a bespoke solution for which a 600-page book of requirements was produced. But by trying to make everybody happy, this complex system in fact made nobody happy, and we only had 1,500 users after two-and-a-half years. The spiraling costs of the CRM program also meant that it was extremely hard to build a coherent business case.

With the on-demand CRM system, we took a quite different approach. Instead of 3,000 individual requirements, we had less than 30 and, instead of an expensive customized solution, we looked for an out-of-the-box solution that best suited our business needs. This system was then enhanced to offer 26 must-have functionalities that were identified by the business. Adapting the software took just three months, and we’re still adding 500 new users every month, with a medium-term target of 10,000 users. The on-demand software isn’t just more popular, it’s also a lot cheaper, and we have dramatically reduced the costs per user.

Significant savings

By standardizing our infrastructure and deploying on-demand applications, we have been able to realize substantial savings. This is echoed in our voice and network infrastructure where we reduced costs by more than 50% in some areas by standardizing contracts and reducing the number of suppliers for mobile telephony and the worldwide data network. Overall, IT significantly contributes to Siemens’ targets to reduce sales, general and administrative costs. Also, we have been able to reallocate savings into areas of IT, where it can demonstrably help the business; this is the essence of aligning IT with the business.

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