A Time to Optimize

There is a time for everything: a time to grow and a time to optimize. The evolution of business and its IT organization follows a cycle of Optimization – Alignment – Growth. Knowing the timing will avoid unnecessary effort and wasted energy. This time of economic recession is the right time for Optimization. You know it is the time when the Cover Story of a recent InformationWeek.com issue (August 3, 2009) carried the tagline "With growth projects on hold, now is the time to clean up IT operations and drive hard bargains with vendors." You also know it is the time when Forrester, a prominent industry analyst, proclaims "Lean: The New Business Technology Imperative"  as the subject of its upcoming Business & Technology Leadership Forum (October 8-9, 2009).

What is Optimization?

Before we all join the InformationWeek.com or Forrester bandwagon, let me share with you my point of view on Optimization. In a nutshell, Optimization is the process of creating a sustainable peak performance. Cleaning up IT operations is just one aspect of Optimization. Going "Lean" is another one, a potentially misleading one I may add (this is the subject of my next post).

Now how do you create a peak performance? By following the examples of the athletes. Every competing athlete would have one common objective: to peak at the right moment, e.g. at the championship event. In order to do so, an athlete would follow a training regime that includes shedding the fat or eliminating the extraneous movements (Efficiency), while building up the strength and the stamina (Productivity). This is the mechanics part of Optimization.

And how do you create a repeated or sustainable peak porformance? By continuously "tuning the engine" to develop the capability to switch the level of intensity on demand. For the athlete, it means to be able to continue when "hitting the wall" or to forget a dismal performance the day before. For the business, it means to be able to scale up and down the workforce or open and close stores at a moment’s notice (Agility). This is the mental part of Optimization.

Why Optimize?

Growing the business is like winning at championship tournaments. It occurs at repeat intervals (growth cycles) and success does have a cumulative effect (more fame and endorsements for the athletes, more sales and profits for business).

Growth also means spending. Just like an athlete is drained and exhausted after a competition, Business often ends up with depleted Efficiency and Productivity after a growth cycle. Optimization is needed to restore them.

From another perspective, in order to achieve success time after time, Business needs to set new challenging targets (new records for the athletes). Each new target may create a new ball game that needs a revision (if not a total revamp) of the current business plan (training program for the athletes). Optimization is often an integral part of that revised/revamped business plan/training program. 

What happens if you don’t?

In an earlier post (A Darwinian View of a Successful IT Organization), I mentioned a survey by Bain & Company of 500 IT executives and its conclusion about the "alignment trap". According to the survey, a highly aligned but not optimized IT organization spent 19% more and generated 49% less in growth rate than a highly optimized one. Against the average organization, the figures were somewhat better at 13% (more spent) and 14% (less growth) respectively but still negative. That is the business risk of not being Optimized.

In the same post, I also told the story of a firm who grows for the sake of Growth:

"The IT group is highly aligned with the Business in this vision and structures its services accordingly. It means that it offers customized IT Infrastructure Management services to its clients with minimal change to the support model that the client is familiar and comfortable with. The outcome after several years of accelerated growth is that the IT spending rate started to overtake the growth rate because they are forced to maintain different technology platforms, operating processes and support staff for different clients. The sad truth is that this is not a unique case."

In hindsight, we all know now that Growing for the sake of Growth, as experienced by many firms in the pre-recession period, is not sustainable.

What to Optimize?

The obvious place for improving Efficiency is in Spent Management. Back-office services, support functions and general & administrative (G&A) costs are prime candidates. The problem is that many companies wield the ax indiscriminally and some times inadvertently cut deep into potential business enablers.

But beyond Spent Management, there are at least 3 other areas worth considering: 

• Improved Infrastructure Innovation;
• Improved Supply-Chain Management; and
• Increased Workforce Productivity.

In the same Cover Story mentioned above, Guy Chiarello, CIO of JPMorgan Chase, talked about the necessity for Infrastructure Investment: 

"When business is flourishing and demands are increasing, infrastructure has to serve the business in a progressive way (…) If you are in the CIO seat, the most exciting times for infrastructure are in down environments. (…) Companies can come out of this downturn with lower IT infrastructure costs and the ability to execute more quickly as growth opportunities return."

and for "upper-hand negotiations with vendors" that provide an estimated 25% savings now with no clause to ratchet up when the good time returns:

"I won’t pay a dollar more [than I paid] for the last thing I bought."

Looking ahead

In lieu of conclusion, I would like to quote again from the above-mentioned post:

"If you consider the 3 steps of Optimization – Alignment – Growth as a series of short evolution cycles that spiral upward (like a staircase to heaven), you can make small yet steady progress toward Success."

What do you think?

Can you now make a distinction between Optimization and mere Cost Cutting?

Does your IT organization looks beyond the obvious in Optimization?

Related Posts:

1. A Darwinian View of a Successful IT Organization
2. 3 Steps to a Successful CIO
3. Is Lean Equivalent to Optimized?

 

Letter to an aspiring IT Leader – Part 3

Is Lean Equivalent to Optimized?