You know why it happens: Old technology builds up as departments move to the next new thing. Mergers and acquisitions bring someone else’s IT to your doorstep, adding layers to your layers. Shadow IT runs parallel to sanctioned IT. CIOs fail to set or enforce standards. And all along, consolidation and integration projects that cost money lose the struggle for funding to customer-facing projects that promise to make money.
You also know this is no good. Such baggage takes money and time to maintain, says Frank Wander, founder of the IT Excellence Institute and former CIO of Guardian Life Insurance. “The costs to keep complexity running crowd out investment dollars,” Wander says. “That affects agility.” A grim cycle.
Simplicity, on the other hand, promises clarity, speed and flexibility, not to mention lower costs in IT and other areas of the company, says Kevin Humphries, senior vice president of IT at FedEx. Humphries opened a brand-new data center that will be the $39 billion company’s main technology facility. Simplification underpins the entire project, including virtualizing servers, shrinking the number of applications and re-thinking the cooling systems, Humphries says. It was engineered to be one-third the size of the one it will replace. “The largest theme we’re working on in IT right now is complexity reduction.”
At McDonald’s, software undergoes CIO David Weick’s simplicity test: If he can, with no training, sit down and make it do what it’s supposed to do, then it is good software.
So important is simplicity to General Electric that CIO Charlene Begley has made it one of four strategic imperatives for IT. She knows how insidious complexity can be, even in the most disciplined organization. In her 24 years at the giant conglomerate, Begley has been CEO of four of its six current divisions, including the $8.6 billion Home and Business Solutions unit, which she runs today. Former GE chairman and CEO Jack Welch famously urged his leaders to clean out their attics occasionally. It’s that time again. Begley wants to reduce the number of GE data centers by half and the number of ERP systems by 85 percent by 2016.
“Simplification is now prioritized. It’s funded. It’s not scoped down,” she says.
But it is difficult to achieve at GE, FedEx, McDonald’s or anywhere else. Together, CIOs and business leaders must figure out what needs to go, what needs to change and how to finance and staff the project. Then they must develop plans to stop complexity from snaking its way back in.
It’s an ongoing battle, but one that could be worth millions to win.
Complexity is slow, expensive and not secure. If systems are difficult to use, employees get flummoxed, wasting work time searching for functions or waiting for help. Multiply that lost time by thousands of employees, and entire companies slow down. When a new business opportunity or a chance to beat a competitor comes along, you can’t move fast enough or don’t have the funds to invest. (See “CIOs Seeking System Interfaces That Are ‘Apple-Simple’.”)
J.C. Penney’s new chief operating officer Michael Kramer complained to Wall Street recently that he discovered the company runs 492 applications, 88 percent of which are custom. He thinks it should be running about 100 apps, total. “It’s a mess,” he said. The troubled retailer, which lostUS $152 million last year on sales of US$17 billion, plans to simplify IT as part of a massive transformation project. “When you want to make a change in the business, it takes a lot of un-layering and putting back on,” Kramer said. “That costs money.”
According to The Hackett Group, typical companies run more than twice as many data centers as world-class companies, which Hackett defines as those with IT groups in the top 25 per cent for both efficiency and effectiveness. Typical companies also run an average of 39 applications for every 1,000 end users, compared to just 20 at high-performing companies. As a result, the best-run IT groups deliver services 15 percent more cheaply than typical companies.
“Less complexity has material benefits to the business, not just a positive effect on IT spending,” says Rich Pople, global IT practice leader at The Hackett Group.
For example, vigilantly guarding against complexity paid off for some high performers when the recession hit in 2009, Pople says. During that dark time, typical companies cut IT costs by an average of 6 percent, mainly by stopping new projects and slashing end-user support.
Elite companies, however, reduced IT spending more–by 9 per cent–mainly by retiring legacy systems and simplifying their technology environments. At the same time, they kept application development going, introducing new features for employees and customers and watching low-performing competitors tread water on last year’s capabilities, he says. “These companies were in a better position to grow.”
Despite the crunch, typical companies have so much old, complex IT that they can’t think about cutting the staff or systems that keep it going. Pople calls that “entitlement spending” because, like federal programs such as Social Security and Medicaid, it’s difficult to make drastic changes. Letting IT entitlements grow, he says, affects finance and procurement, making these functions more expensive to run than necessary.
Like many companies, FedEx used to build lots of systems specialized for single functions, such as customer service, with their own applications, hardware and databases. FedEx had been running decades-old software and hardware, including a networking architecture built in 1974 and a descendant of 1979-vintage airline transaction-processing software. “We had one or two of everything,” Humphries says. The company also had to keep IT staff who knew how to care for the relics. He declines to say whether the company will reduce staff as it shuts down old technology. But he notes that private clouds of virtual servers and software let the average IT staff member support several business areas.
GE understands the ill effects of too many applications or other forms of complexity, which increase costs and slow the business down, Begley says. It has acquired at least five companies since 2010, all of which came with IT systems that had to be turned off or migrated. The energy division alone accounts for five recent acquisitions, including one company that brought in 39 ERP systems, Begley says. GE signed two more deals recently, which it’s expected to close later this year.
Before Begley became CIO in 2010, GE had no formal time frames for integrating a typical acquisition, she says. “We said, ‘Not OK.'” IT will make no headway in simplification if integrations languish, she says. Now, GE is working toward establishing a rule that it has to be done within 18 months. “That’s enormous in this company.”
Begley has also assigned 1,000 people to refine business processes as part of a project called GE Advantage. “This is about killing complexity. As you do, you get faster. You have speed, lower cost and the flexibility to go faster,” Begley says. “It’s about competitiveness.”
Plan of Attack
Read the mission statements of 100 companies and at least 75 will mention simplicity, says Ron Ashkenas, senior partner at Schaffer Consulting. “We’ve talked about it for thousands of years. Leonardo da Vinci talked about it, the ancient Greeks talked about it,” he says. “But doing it is another thing.”
First, CIOs must enlist supporters with pocketbooks, says Ashkenas, who wrote the book Simply Effective: How to Cut through Complexity in Your Organization and Get Things Done.
You might appeal to their sense of doom, or as Begley puts it, to “what matters.” For the CEO, it’s missing new business because the company is freighted with plodding, confusing technology that costs too much to maintain. For the board of directors, it’s managing a crisis after a big security breach is traced to vulnerabilities in systems that aren’t fully understood.
When Begley described her simplicity plans to GE’s board, she explained that a simpler infrastructure is more secure and easier to protect. “When we have incidents, typically, the root cause is some type of complexity,” she says. “Cybersecurity is something our board cares a lot about. Our company’s reputation is at stake.”
Risk, generally, accompanies older or overly complex IT, Humphries says, and mitigating it was a key part of the business case for FedEx’s new data center. “Our infrastructure profile was growing too risky,” he says.
Staffing simplicity projects requires some care. Managers often issue unclear directions and take too long to make decisions, Ashkenas says. “Simplification is a concept that can be difficult to articulate. It means more than cutting,” he says. For example, rearranging business processes requires understanding large ideas, such as how customers interact with the company or what federal agencies require for compliance. Existing technology must be mapped to show where the information related to those ideas resides. Then debates can begin about what to change.
To make simplicity work, companies need thinkers who are a little bit tactician, but also visionary and inspired by challenge, Ashkenas says. People get depressed by an effort that feels like an exercise in cutting alone, he says.
As Begley subtracts at GE, she is also building. For example, GE opened an IT security center in Virginia last year. So far, 85 employees work there. This summer, the company plans to open another IT facility in New Orleans, where up to 300 people will work in enterprise architecture, data management, networking and other functions for GE Capital. A new IT center is under construction in San Ramon, Calif., too. GE expects to hire 1,100 IT workers in all as it pulls back some outsourcing work it had sent to India. Simplification doesn’t mean cutting alone, Begley says. “Excellence is the priority.”
GE picked top performers across IT and business functions to collaborate in person and by video in conference rooms about how to consolidate processes and applications. They borrowed agile development methods, such as setting weekly milestones and appealing to decision makers to solve problems the same day as they are discovered. “One thing that drives me crazy–I’m not an IT person–is everything seems to be a three-year project,” Begley says. “We’re trying to get away from [that].”
Spelling out clear goals for each person on the team has kept GE’s simplicity quest on track, she says. CIOs in business units have to report to her and their business managers quarterly about whether they made their goals to, say, eliminate a given number of ERP systems. Begley must meet yearly objectives set with Chairman and CEO Jeff Immelt and the board. “We have dashboards with names, dates and the people who care.”
She expects payback from this work in two to three years and plans to invest some of the returns in cloud and mobile technology.
Getting It Done
Simplicity doesn’t happen naturally, so CIOs should make detailed plans. Tactical moves include whittling down the number of IT suppliers you count as essential, which streamlines more aspects of the operation than technology and support choices do. This may lead to fewer contract negotiations, better pricing and stronger relationships. At GE, each business unit has now chosen core technologies and vendors and intends not to deviate, Begley says. As key software is upgraded, GE’s IT group will avoid much customization, which adds complexity and cost. “No matter what you’re running, you’re going to be more competitive if you go faster. I’m bringing that mind-set to IT,” Begley says.
McDonald’s uses times of major operating system upgrades to reduce the number of applications and tools. When it recently moved from Windows XP to Windows 7, the company eliminated various personal productivity applications that employees had brought in. “It would have cost us money to make them work on the new OS,” Weick says. IT goes through a similar examination when making changes to infrastructure.
Degree of simplicity is an important criteria for McDonald’s when IT evaluates a new product. How easy the product is to implement and how fast IT can deploy it matter as much as functionality, he says.
Like a new car, a new IT system starts to decay the moment you turn it on. Servers, laptops and smartphones are machines, after all, and software gets gummed up as it takes in data and interacts with other software. Aging technology requires extra nurturing.
Because every piece of IT has a rate of decay, Wander says, CIOs should create a life plan for each one. This helps keep down how many layers of technology have to be integrated. It also helps companies avoid getting stuck with technology dregs, he says. PowerBuilder was once a hot development tool. Then Sybase, itself a declining database vendor, bought PowerBuilder and the tool lost momentum, he says. “If you don’t deal with that complexity, you end up with systems difficult to maintain because you can’t get people. Then it’s an operational risk.”
At McDonald’s, Weick’s team categorizes technologies as explore and innovate, commercialize and deploy, or enhance and maintain. IT works with business leaders to set investment levels and plans for how each system will move through the cycle. Continuous pruning is a challenge for CIOs, he says. “It’s easier to add something new than retire something old. It builds up like plaque in a coronary artery.”
Keeping Simplicity Alive
One reason simplification fails, says Humphries at FedEx, is that people don’t realize that simplifying is actually pretty complicated. His new data center is supposed to be simpler to run for the IT group and give business units the ability to change course quickly, to get ahead of market events, he says. Building such a facility involves many decisions about technology and design. “You would be shocked to see the walls and walls and walls of excruciating detail to make something very complex end up simplified.”
Maintaining simplicity as a state of mind, as Wander envisions, requires that you don’t underestimate the ongoing effort involved. After all, doing business brings fresh complexity to IT every day, he says. Mergers and acquisitions won’t stop. Nor will rogue IT in departments that circumvent the rules. At the same time, corporate budgets are finite. The noble and concrete reasoning behind a proposed project to consolidate servers or inventory IT assets may not win against a proposal to expand operations in a growing customer market, he says.
Even when simplification projects are rejected, the IT should work that way anyway, he says. “If you’re a good CIO, you’re doing this all the time.”