The pressure to maximize the value of enterprise IT resources has become a hot topic in the IT world. But there is a problem with the focus on maximizing the value of IT resources - most organizations don’t have processes or structures in place that will tell them what they should be doing to get the most value from their IT expenditures.
Since they don’t know what they should be doing, many organizations have adopted the "doing more with less" philosophy in an effort to improve the value of their IT resources. The focus on cutting IT costs and targeting IT efforts at achieving immediate benefits is producing some short term improvement, but these short term efforts may end up hurting the performance and competitiveness of some organizations in the long run.
Instead of focusing on doing more with less, organizations should be focusing on what they need to do to maximize the value of their IT resources on an ongoing basis – and I think ERP can provide some lessons. In very simple terms, ERP, which is an acronym for enterprise resource planning, is all about using enterprise resources in the most efficient way to meet demand for the enterprise’s products and services. Isn’t that pretty much what we want to do with our IT resources too? We want to be sure our IT resources are being used in the most efficient way to produce the most value for the enterprise.
Here are some things I think ERP can teach us about maximizing the value of enterprise IT resources:
Drive IT Resource Management and Optimization Efforts at the Enterprise Level
Let me give you a quick history lesson on the evolution of ERP. Before ERP, companies relied on order processing, manufacturing control, and inventory control systems. These systems were linked but they operated pretty much on a stand alone basis. Over time, the stand alone systems evolved into MRP – manufacturing resource planning – and DRP – distribution resource planning – systems to support the manufacturing and distribution functions. The MRP and DRP systems were significant improvements over the old systems they replaced – but looking at manufacturing and distribution with different views created problems.
The MRP system tried to optimize the manufacturing process and manufacturing resources while the DRP system tried to optimize finished goods inventory and distribution – but optimizing particular functions frequently hurt the performance of other functions.
When enterprises began to recognize this suboptimization problem, they realized the solution was to raise resource management and optimization to an enterprise-wide level – and that’s when ERP was born. By taking an enterprise level view of resource utilization and processes, organizations have been able to achieve significant cost reductions combined with improvements in operating efficiency, productivity, and customer service.
I think most organization face a similar problem with their IT expenditures and resources. They don’t have structures in place that provide an overall view of how IT resources are being used – or should be used to produce the most value for the enterprise. As a result, most IT decisions end up being made on a micro level using information pulled together to support a particular IT decision or the IT budgeting process. Making IT decisions at the micro level makes it almost impossible to ensure the enterprise’s IT resources are producing maximum value for the enterprise.
The first step in maximizing the value of IT resources is to create a structure that provides an enterprise-wide view of how IT resources are being used, how IT resources should be deployed, and where IT efforts should be targeted. With a top-down view, the enterprise will be in a much better position to understand the implications of IT decisions and the value of their IT resources.
Tie IT Resources to Demand
The second basic concept of ERP is to use the enterprise’s resources in the most efficient manner to produce the most profit for the enterprise. That means the acquisition and utilization of resources is driven by demand for the enterprise’s products and services – and products and services that produce the most profit are given priority in terms of resources. It’s a simple concept. Use your resources to produce the most possible benefit for the enterprise.
That’s the way it should work with IT resources too. Tying IT resources to the activities or functions that use the resources is how you determine if your resources are being used to produce maximum value for the enterprise. It’s not always black and white, but IT resources and efforts will generally produce the most value when they are targeted at enterprise activities and functions that produce the most value for the enterprise.
It’s amazing how much easier it is to make decisions about IT resources and activities by taking an enterprise level view of IT resource utilization and tying IT resources to particular activities and functions. Organizations are able to ensure IT resources are being used to produce maximum value for the enterprise.
Constantly Optimize IT Resource Performance and Cost Effectiveness
Another basic concept of ERP is constantly improving the performance and cost effectiveness of the enterprise’s resources. ERP tracks factors that focus attention on cost and performance inefficiencies – and organizations are able to take action to eliminate the inefficiencies.
Enterprise IT has to play by the same rules in terms of performance and costs. That means refocusing the entire enterprise on the importance of IT performance and cost effectiveness and creating new IT management structures to monitor performance and cost effectiveness. In many cases, it also means improving the financial skills of IT leaders and/or adding financial expertise in the IT function.
Quickly Redeploy IT Resources When Demand Changes
One last basic ERP concept that fits in the IT world. Since ERP resource utilization is driven by product demand, resources need to be quickly redeployed when product demand changes. If demand for a particular product drops off, fewer enterprise resources are devoted to the product. On the other hand, if demand for another product suddenly increases, resources are quickly redeployed to support that product.
Being able to quickly redeploy IT resources sounds good – but it isn’t easy to do in most organizations because of the long term nature of many IT resource decisions and commitments. The growing recognition of the importance of being able to quickly redeploy IT resources and retarget IT efforts is forcing organizations to rethink the way they have acquired IT resources in the past. The need for greater flexibility is a major factor in the growing interest in Web services based applications, modernizing legacy systems, outsourcing non-critical functions, and on-demand or utility computing.
Avoid the ERP Complexity Trap
There is one more lesson we can learn from ERP – and that’s to avoid the ERP complexity trap. ERP systems can produce a lot of benefits, but they can also become a nightmare. Many ERP systems have never delivered their promised benefits because the systems have become overly complex and are difficult to operate and support.
Creating enterprise level processes and structures to maximize the value and performance of IT resources can produce tremendous benefits – but the processes and structures can also create problems if they get too complex. The key is to avoid unnecessary detail. IT resource optimization structures don’t need to provide precise information, they need to provide meaningful information the enterprise can use to ensure its IT resources are producing maximum value and IT resources are performing at optimum levels.
IT can learn a lot from ERP about planning and managing IT resources. IT resources have to be allocated at an enterprise level to produce the most value for the enterprise, IT resource performance and cost effectiveness has to be managed and optimized, and IT resources have to be quickly redeployed when they can produce more value supporting another enterprise activity or function.
By building on basic ERP concepts, enterprises can start making real progress in their efforts to maximize the value of their IT resources.
About the Author
Bruce Skaistis is the founder of eGlobal CIO. He began his career as a consultant for Arthur Andersen and was CIO of a
large bank group before forming his own information technology management services firm. He has extensive IT management,
process optimization, change facilitation, and strategic planning experience with organizations in different industries.
About eGlobal CIO
Building on its ongoing research of high performance enterprise IT functions and leaders, eGlobal CIO provides
specialized IT management support to help organizations optimize their IT resource and performance management
processes, effectively manage IT risks, and develop high performance IT functions.
To read other eGlobal CIO Executive Briefings on High Performance Enterprise IT or to find out more about eGlobal CIO, you can visit the firm’s Web site at www.eglobalcio.com.
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