IT Performance Optimization – A Framework For ... - Cognizant

Cognizant CIO SeriesIT Performance Optimization – A FrameworkFor Constraining Budgets Without SacrificingBusiness TransformationCIOs and CFOs remain under extreme economic pressure tofurther reduce spend while maintaining high service and quality.We offer fresh thinking and guidance on how to work throughthe performance and cost optimization process.By Vineet Kapur and Akash JainAchieving suchsignificant performanceoptimization doesrequire dedicatedresources fromthe client.With the global economy gradually rightingitself amid continuing uncertainty, businessesaround the world are adjusting to new economicrealities. Nearly all of them have been forced totrim their bottom lines and balance sheetsthrough aggressive cost and capital reductionmeasures, sometimes to thedetriment of strategic businesstransformational efforts.Doing more with less is nothingnew for CIOs. However, two thingshave made cost-cutting especiallydifficult this time around. Formany companies, IT expenditureshave for the last few years already been pareddown extensively, making the additional cutsseem even more painful. Additionally, CIOs continueto be responsible for delivering new businesscapabilities despite facing even greaterresource constraints for funding them.Many companies will find it beneficial to turn toservice providers that specialize in performanceoptimization. But the key imperatives in theseeconomic times are speed, results and an understandingthat strategic initiatives should not besacrificed, no matter how deep the cuts must be.We have developed a framework and relatedmethodology to help IT leaders meet cost-cuttingobjectives while preserving ongoing businesstransformation initiatives -- in other words,focusing on total performance relative to cost,rather than cost alone. The framework is basedon our experience in working with companiesthat are facing these challenges. Through arepeatable, six-step methodology (see Figure 1),our framework enables companies under duressto do the following:■ Assess their IT budgets and pinpoint optimizationopportunities.■ Collaborate with a strategic partner on newideas to drive effective performance management.■ Identify short- and long-term savings from ITresources and optimizations.■ Syndicate an implementation roadmap to transformperformance improvement opportunitiesinto reality.Our framework was formulated in response toCIO series

1. Identify Engagement Scope■ Conduct executive-level discussions to understand priorities.■ Ensure comprehensive scope.■ Identify key stakeholders.2. Perform Data Collection■ Conduct interviews and gather financial/architectural information.■ Circulate questionnaires to different subgroups, such as application,infrastructure and support desk.3. Identify Optimization Opportunities■ Based on responses, list all possible opportunities within areas in scope.■ Categorize opportunities based on financial and organizational impact.4. Quantify Benefits Through Identified Opportunities■ Scrutinize “optimization gaps” by benchmarking IT performance.■ Validate opportunities with stakeholders and executive committee.■ Based on the financial data, quantify the benefits from the opportunities(for example, high, medium or low impact).5. Explore Alternative Scenarios■ Based on client feedback, refine analysis of short-listed opportunities.■ Perform scenario analysis to determine the best possible sequence ofimplementation (for example, high risk vs. biggest bang for the buck).6. Create Implementation RoadmapSix-Step Methodology■ Syndicate recommended sequence and the roadmap for implementation(from immediate opportunities and low-hanging fruit, to long-term savingsaccomplished by enabling a strategic agenda and transformation).client requirements. We were engaged by a global,multi-billion dollar Fortune 100 diversifiedmanufacturer that was facing a very sharp declinein its top-line revenue. The new CIO was chargedwith reducing the IT spend by more than 7%annually by the CFO and the board. Historically,the company’s annual IT expenditures wereseveral hundreds of millions of dollars. In thecurrent year alone, the CIO was asked to reduce ITspend by a very significant percentage.At the same time, the company’s strategic plancalled for two-thirds of its new business to comefrom areas of the world into which currently justone-third of its supply chain extended. Thesegeographies included China, India, Asia Pacific,and Eastern Europe and the Middle East. TheCIO was expected to enable this growth not onlywithout additional budget, but also whilereducing costs over the next two years. Hischallenge was to generate savings out of thecurrent IT operations and then to continuefunding all new growth in the new geographieswithout any additional allocation.He was also tasked with the longer termchallenge of becoming best-in-class whilecutting down IT spend to less than 2% ofrevenues within five years.2CIO series

IdentifyEngagement ScopeSix-Step Methodology1 2 3Perform DataCollectionIdentify OptimizationOpportunities4 5 6Quantify BenefitsThrough IdentifiedOpportunitiesExplore AlternativeScenariosCreate ImplementationRoadmapFigure 1Using our framework over the course of fourmonths, the client was able to identify tens ofmillions in savings in the first year, most of itderived from optimization of their support andmaintenance activities.The Methodology UnfoldsIn the first two phases of the methodology, themain objective for this client was to assess ITbudget and spend, and pinpoint optimizationopportunities. It was crucial that the client heldnothing sacred -- to do so would limit the scopeof analysis and, in turn, the company’sopportunities for performance optimization,thereby artificially constraining potentialsavings. Limiting the scope without properanalysis would also mean not viewing every lineitem in the budget objectively.Aside from one or two areas deemed “strategic,”the client did indeed consider all optimizationopportunities, including infrastructure, maintenanceand support, most applications and evencertain business process operations.With this particular client, the data collectionphase required two courses of action. Theorganization supplied financial data by application,project and functional area, augmented byour internal centers of excellence to supply optimalperformance data for given functionalareas. Secondly, templatesand questionnaires were circulatedto key stakeholderswho could supply ballparkestimates.Using this data -- plusprogress reviews and interviewswith the key stakeholders-- it’s important to createparameter-driven financialmodels that mirror theclient’s budgetary constructs.Furthermore, the financialmodels enable a view where applications-relatedexpenditures can be organized by technologytowers, such as Java/J2EE, Lotus Notes, mainframeapplications, Powerbuilder applications,Sharepoint, Visual Basic, EAI and “other.”We have developeda framework and relatedmethodology to help ITleaders meet cost-cuttingobjectives while preservingongoing business transformationinitiatives — in other words,focusing on total performancerelative to cost, ratherthan cost alone.CIO series 3

Financial modeling views also enable identificationof consolidation opportunities by tower,with vendor consolidation savings monetized indollars. Similar financial views can be preparedfor infrastructure and other areas.Opportunities for IT performanceenhancement and cost sav-The CIO was expected toenable this growth not ings are scrutinized foronly without additional “optimization gaps” by benchmarkingthe company’s perform-budget, but also whileance to as great a level of detailreducing costs over theas possible by technology tower,next two years. IT/business processes and personnel.A key step in this processis obtaining or constructing relevant benchmarksthat intersect for peer sets by competitors/industries,geographies, size of company, etc. Varioussources are available for relevant yardsticks aspublic and purchased sources, the client’s organizationitself and -- importantly -- our broad/deepexperience across various industries and technologies.Benchmarking IT costs and performance is notsimple -- executives must dig much deeper thanjust their IT budgets and understand all componentsof their businesses that could also impactIT costs. A structured taxonomy with definedmetrics and data elements is required to accuratelygather the internal data needed to effectivelybenchmark performance. That said, thisstep is nonetheless crucial, and the largest optimizationgaps will undoubtedly provide an agendafor scrutiny and analysis with clientstakeholders and, ultimately, the identification ofspecific performance optimization opportunities.It’s important that stakeholders are given theopportunity to validate these financial modelsand incorporate their feedback. Validating andsyndicating the model typically requires severalprogress reviews. After this iterative review, theparameters and the financial model are frozen,with everyone agreeing to where they should beset for the first, second and third years.Once validated, it’s important to sequence theimplementation of all the opportunities intologically phased scenarios, with outcomesavailable in both P&L and balance sheet format.This enables the client to see short-term resultsjuxtaposed against long-term savingsopportunities. In the end, an implementation planis laid out in the form of a detailed transformationroadmap for the IT organization, along with anexecutive summary that can be presented toexecutive management and the CIO.Collaboration is KeyThroughout this process, it’s important tomaintain a high degree of objectivity. During theinitial stages, clients are engaged via interviews,status updates and progress reviews, with theobjective being to elicit as much information aspossible from their organization. Thereafter,during the latter stages, these same forums areused to form and validate hypotheses, makecorrections and arrive at various scenarios.While developing the detailed roadmap,stakeholders are constantly asked for feedback,so that the roadmap is a comprehensive andimplementable workplan, including specificdeliverables, responsibilities, timelines andmeasurable potential savings targets.Achieving such significant optimization doesrequire dedicated resources from the client. Forinstance, at this particular client, a number ofstakeholders were focused 100% on theinitiative, including an IT finance professionaland a liaison who helped facilitatecommunications with individual stakeholders.There were additional people involved, whofocused between 20% to 50% of their time onthe program, including the CIO and his directreports. Other executives kept involvedthroughout the exercise by attending andendorsing key progress reviews.In the end, the overall effort can be a veryworthwhile investment because -- when theframework is followed -- the roadmap is fullysyndicated and accepted by everybody involved.It’s really money in the bank: The CIO can take itto the CFO and the board and even use it for hisquarterly estimates because it details savingsthat can be achieved by towers and thestakeholders involved. More importantly, it’salready been embraced by his team.Key Principles Enabling SuccessThroughout the process, several importantprinciples can ultimately lead to significantsavings for the client.■ Disengage strategic IT resources from maintenanceobligations. On any CIO’s team, thebest assets are the most experienced, skilledand reliable people. However, these are the4CIO series

very people who tend to be consumed withthe day-in, day-out vortex of maintenance,enhancements and break/fixes within thefirm’s mission-critical IT landscape. They haveno time to work on strategic initiatives -- andeach time that they do seem to break freefrom these demands to focus on a strategicinitiative, they soon get sucked back into thevortex to address the next crisis. So, CIOsneed to dedicate these people to transformationprojects rather than letting them be consumedby maintaining the IT landscape whensuch crises occur.■ Consolidate and optimize maintenanceefforts with disparate vendors. It might makesense in some cases to have multiple vendors,but if you have too many of them, it’s inefficientas well.■ Conduct a rationalization analysis of the ITarchitecture. In the case of the client mentionedabove, it acquires many companies inthe regular course of its business, and theintegration of these companies has led to aplethora of technologies, both in the infrastructurespace and the application space. AnIT architecture rationalization and migrationto a standard set of technologies is essentialto keep the costs in check going forward. It isalso important to halt the proliferation oftechnologies by implementing processes,compliance and toll gates as new infrastructureor applications are deployed. In somelarge global enterprises, it’s not unusual tofind thousands of applications,only about 20% of which arecritical to the functioning of theorganization. By employing aframework of rationalizationprinciples (see Figure 2), it’s possibleto sequence the scenariosto develop an IT performanceoptimization roadmap.■ Reduce maintenance of excess applications.This particular client was running multipleinstances of SAP as the result of numerousacquisitions. Even with SAP as the enterpriseapplication of choice, a number of small additionalapplications were deployed to do specializedtasks that could already beaccomplished within SAP. By enforcing the80/20 rule, companies can sharply reduce themaintenance of excess applications.■ Analyze global infrastructure assets. This isa very important functional area, as it oftenconsumes 50% to 75% of the entire IT budget.Infrastructure consultants and enterprisearchitects can use our Infrastructure PortfolioAnalysis (ISPA) methodology to perform aAn IT architecturerationalization andmigration to a standardset of technologies isessential to keep the costsin check going forward.Cognizant Framework of Rationalization PrinciplesDisengage strategic IT resources from maintenance.Consolidate/Optimize lights-on ormaintenance efforts.RationalizationPrinciplesConduct rationalization analysisof IT landscape architecture.Enforce the 80-20 rule: a large global organizationis likely to maintain thousands of applications.Over 50% of the IT budget is going to be forinfrastructure. Use standard infrastructurerationalization tools.Kill the incremental staff augmentation paradigm.Figure 2CIO series 5

Getting There from HereTypical Expenditure ProfileOptimized Expenditure ProfileIT BudgetIT BudgetFixed$NewSystemsExistingSystemsValue Enabling ITMaintenanceTransformwhilePerformNewSystemsExistingSystemsValue Enabling ITMaintenance$StrategicInitiativesVariableInfrastructureInfrastructureLights OnTimeOrganizationalImpactTimeOptimization of Fixed ExpenditureEnhanced Focus on TransformationFigure 3rationalization of the infrastructure landscape.■ Eliminate incremental staff augmentationand move to a managed services environment.Staff augmentation only ends up costingIn addition to the savingsderived from lights-onoptimization, we werealso able to target $35million to $50 million inadditional savings duringthe first year, with therecommendation forthe client to adoptmanaged services.Refocusing on Strategycompanies more moneybecause they’re not optimizingtheir strategic plan downthe road.These principles are extremelyimportant and set specificboundaries within which themethodology and frameworkcan operate. These principlesalso enable the sequencing ofdifferent activities to developthe roadmap.At this particular client, there was an escalatingspend on maintenance that was siphoning awayresources from strategic initiatives. In fact, theCIO was considering shelving strategic projectsto meet his cost-cutting mandate. The companywas using an inefficient sourcing strategy,consisting of multiple vendors by tower.Additionally, the company was also making manyacquisitions every year, about half of which arefairly large-size companies, and the ITorganizations were running in parallel andoperating as separate entities from the parentcompany.This is not unusual, but neither is it optimal, asmaintenance, application development and infrastructurecosts squeeze out the ability to bestrategic (see Figure 3). A structured and detailedperformance-optimization framework and underlyingmethodology and governing principles canspecify the savings potential in all of these areasso the client can focus on strategy.In addition to the savings derived from lights-onoptimization, we were also able to target $35million to $50 million in additional savings duringthe first year, with the recommendation forthe client to adopt managed services. By showcasingseveral innovative contract structures inthe model, management could evaluate alternateincentives. Creative risk/benefit-sharing6CIO series

incentives offered additional savings, such astiered volume discounts and other ways to frontloadthe savings in return for back-end volume.Assuming the client completes these applicationand infrastructure rationalization efforts andimplements our other recommendations, itshould save well over $100 million over the nextfive to six years. The methodology alsoincorporates “50,000-mile checkups,” toperiodically review and revise the ITperformance optimization implementationroadmap to maintain its relevance.This year, CIOs everywhere will be asked tomeet goals and directives they’ve neverapproached before -- and that they may beunequipped to meet. Because of the urgency ofmeeting not just cost-cutting but also strategicperformance initiatives, most CIOs will needhelp from advisors and vendors, and the mostsuccessful will choose service providers withproven success. Applied to other companies, themodel described above can enable anyorganization to contain costs while makingneeded investments in initiatives that deliverbusiness value, through both difficult andhealthy economic times.About the AuthorsVineet Kapur is a Principal in Cognizant’s Business Consulting group (CBC). Vineet has over 25 years ofexperience in corporate and business strategy, mergers and acquisitions, finance and managementconsulting. Prior to joining Cognizant he was the CFO of Touchstone Asset Management. He waspreviously a Corporate Development Specialist at McKinsey & Company, specializing in embedded crossfunctionalengagements within the healthcare, information technology, financial services,media/entertainment, food and hospitality industries. Vineet can be reached atVineet.Kapur@cognizant.com.Akash Jain is a Senior Consulting Manager in CBC. He can be contacted at Akash.Jain@cognizant.com.About CognizantCognizant (Nasdaq: CTSH) is a leading provider of information technology, consulting, and businessprocess outsourcing services. Cognizant’s single-minded passion is to dedicate our global technology andinnovation know-how, our industry expertise and worldwide resources to working together with clients tomake their businesses stronger. With over 50 global delivery centers and approximately 78,400 employeesas of December 31, 2009, we combine a unique onsite/offshore delivery model infused by a distinct cultureof customer satisfaction. A member of the NASDAQ-100 Index and S&P 500 Index, Cognizant is a ForbesGlobal 2000 company and a member of the Fortune 1000 and is ranked among the top informationtechnology companies in BusinessWeek's Hot Growth and Top 50 Performers listings.Start TodayFor more information on how to drive your business results with Cognizant, contact us atinquiry@cognizant.com or visit our website at www.cognizant.com.World Headquarters500 Frank W. Burr Blvd.Teaneck, NJ 07666 USAPhone: +1 201 801 0233Fax: +1 201 801 0243Toll Free: +1 888 937 3277Email: inquiry@cognizant.comEuropean HeadquartersHaymarket House28-29 HaymarketLondon SW1Y 4SP UKPhone: +44 (0) 20 7321 4888Fax: +44 (0) 20 7321 4890Email: infouk@cognizant.comIndia Operations Headquarters#5/535, Old Mahabalipuram RoadOkkiyam Pettai, ThoraipakkamChennai, 600 096 IndiaPhone: +91 (0) 44 4209 6000Fax: +91 (0) 44 4209 6060Email: inquiryindia@cognizant.com© Copyright 2009, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, orotherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.