Waleed A. Hanafi Chief Technology Officer Failsafe Corporation (Singapore) Pte. Ltd.

FailSafe Corporation (Singapore) Pte Ltd. All Rights Reserved.

Hong Kong – June 14, 2002

Waleed A. HanafiChief Technology OfficerFailsafe Corporation (Singapore) Pte. Ltd.

How Companies are Applying ROI Criteria to their IT Spend



Applying ROI Criteria to IT Spend

Mismatch between the two worlds of business and IT CIO rarely participates as full member of company EXCO Technology managers have grown up from being “techies” and

taken on management responsibility Typically report to CFO or other money controller position Focus is on cost control rather than ROI Budgets are debated as percentage change rather than

content




Drivers of Investment Maintenance Upgrades Obsolescence Fads Requirements Opportunities




Maintenance Revenues of software and hardware companies have fallen

from customer indigestion Spending binge for Y2K is still working through the system

Revenue replacement has come from increasing maintenance costs

Model came from industrial machinery industry to reflect actual costs required to keep machines in production

Now it is just an excuse to collect additional fees Charges are calculated as % of list price, not cost of service

% has increased way beyond reasonable level and represents significant portion of IT budget




Maintenance (continued) Microsoft example of a company that has moved from selling

software to demanding essentially an annual subscription Creating expectation that firms must upgrade on annual basis

Most IT shops cannot handle this level of change, nor do they benefit from it

No demonstrable ROI from majority of fees For most SME’s, non-negotiable demand for payment Vendors rely on lousy record keeping at companies to ensure

annuity income IBM continues to bill maintenance unless told to stop




Upgrades Originally meant to be release of new features, but with maturity

of most software packages, now another revenue generator Can be triggered by OS change, hardware evolution, genuine

feature additions Unless rigorous study undertaken, ROI is assumed since

upgrade is “compulsory” (see Maintenance) In the “seasons of IT”, this is major and predictable event

Staff retention and morale depend on constantly changing IT landscape

Staff now treated as contractors have incentive to stay current Structural conflict of interest




Obsolescence Genuine situation arises where cost of maintaining old system

exceeds that of introduction of replacement Example – server consolidation

Best chance to reset power balance between vendor and company as evolving technology allows replacement of existing infrastructure

Small window of opportunity – once new behaviour threatens revenues, pricing is inevitably changed to re-balance

Classic business case is appropriate and effective ROI clearly visible IF risk is understood




Fads IT people buy stuff IT people run projects When projects fail, or stuff doesn’t work, IT people run bigger

projects When you start hearing about the next great thing, hold onto

your wallets ROI is creatively demonstrated by templates provided by the

vendor Look for soft costs as justifier – “This product will save each

employee 5 minutes per day which equals xx million per year”




Requirements Finally get to what should be number 1 driver Requires in depth understanding of business by IT Must separate “utility” functions from competitive advantage

“By spending this money, am I just keeping up, or am I creating something that will distinguish my business in the eyes of customers”

Get rid of IT “noise” and concentrate on core processes that drive revenue and profit

Desktop PC’s Customer Contact Email Business Process Improvement Network Innovative/Unique Services Security Cost elimination




Opportunities Can I leverage my people and technology to accomplish

something that does not exist today? Different from requirements that are driven by business This is where the CIO/CTO adds value

Creatively selecting technologies and ideas to produce systems that deliver business value

Creation of Intranets to share knowledge Employee self-service systems to cut costs and improve efficiency Increasing customer contact by leveraging technology to open additional

channels




Summary Bulk of spend in most IT shops is driven by “what was”, “what

is”, and “what must be” To break cycle, need to stop treating IT as foreign to rest of

business and to push back on vendor behaviour Rigorous financial analysis is rarely applied to completed

projects because of duration, turnover, changing requirements, reputational damage

Celebrate the successes and bury the failures

Really innovative IT rarely has demonstrable ROI at outset Taking a punt on “what might be”




Summary IT spend is no different from any other investment decision,

EXCEPT It depends on creative people to make it work It depends on hungry vendors to supply tools and equipment The industry has an overly high tolerance of faulty tools and

equipment The end to end process of creating systems is incredibly complex

and dependant on fragile components We don’t apply the same rigor to creating IT systems that we do to

physical systems

Waleed A. Hanafi Chief Technology Officer Failsafe Corporation (Singapore) Pte. Ltd.

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