If only it were that simple. In practice, CIOs don’t have the luxury of executing the equivalent of a tear-down on a dilapidated house, destroying the old and rebuilding from the ground up. Instead, they have to significantly remodel while still living in the house. And since the digital world can be a dangerous place, they also have to protect the house.
While there’s no operating manual for a restart, there are some clear guidelines that can help executives through the process.
The mandate. For all the warnings about the need to change to enable digital business, few executives will buy into the need for a restart unless they’re convinced it will provide tangible benefits in the short and medium terms. “You have to convince yourself that the business is going to be in a much better position,” notes Chris Perretta, CIO of financial services company State Street Corp. “You’re not going to transform the organization for a 10 percent improvement in performance.”
The catalyst for State Street’s own IT overhaul was a root cause analysis that identified flaws in the company’s business operations. It found that the ultimate cause of many problems was IT-related: the financial services company’s IT architecture, the way the company built systems and how it stored data. For example, it was unable to adequately track trades through each step in the trading lifecycle because there were multiple reconciliation systems, some reconciliation work was still being done manually and there was no system of record. To maintain industry leadership and comply with regulations, the company’s IT platform had to advance.
Restarts can also set up IT to support new growth and profitability. One of the most obvious justifications for restarting IT is to support a corporate restart, such as spinning off part of a business as an independent company. That’s what happened when Accenture became a new public company in 2001.
A restart can also set the stage to accomplish a number of other goals.
Pursue a new growth strategy. When an old IT infrastructure and systems do not suit a change in strategic direction, it’s time to create new ones that can. BB&T, a North Carolina financial services company, started its IT transformation effort when it switched from a growth-through-acquisition strategy to one driven by organic growth, and found itself competing with other companies that differentiated themselves through IT. BB&T’s enterprise IT, designed to integrate new acquisitions and run back-office operations, was completely overhauled to focus on providing new services to clients, reducing the company’s cost of doing business and data security.
Enter existing markets and create new ones. Australia Post is a case in point: It needed to make up for postage revenue lost to email and impose order on a messy IT infrastructure. Brought in from Australia’s BlueScope Steel in 2006 to overhaul those old legacy systems, Australia Post’s CIO at the time, Wayne Saunders, invested $500 million to modernize and rationalize Australia Post’s IT infrastructure and organization. That primed the country’s national postal service to grow its parcel, logistics, passport and payments businesses, and to launch an e-services and telecommunications business. By mid-2011, its Future Ready program had enabled Australia Post to grow revenues faster than costs for the first time in four years and increase profits by 31 percent.
Change the business model. The music, publishing, retailing, video rental and travel reservation industries aren’t the only ones that have been transformed by the Internet. Take money transfer services. In many countries, mobile phones are becoming a common tool for sending money—and this was a clear and present danger to Western Union’s traditional wire transfer service. As then-CIO John Dick told CIO.com in February 2012: “For us to continue our relevance in the world, we need to look at alternate ways of moving money between people.”
That look forced the company to reevaluate and overhaul its IT. Today, Western Union provides consumer bill-payment services for hundreds of US companies and an international B2B bill-payment service.
Improve the company’s cash position. While the upfront investment in a restart can be very large, the savings can be much greater. By replacing old infrastructure and systems, large companies have saved hundreds of millions of dollars—enough to underwrite the investments needed to restart IT. Since going public in 2001, Accenture’s $1 billion investment in infrastructure and application improvements has led to $3.5 billion in savings, reduced IT spending as a percentage of revenue by 64 percent and brought down the number of applications in use from 2,100 to 495.
Accenture’s CIO organization achieved these reductions by consolidating, centralizing and standardizing IT operations. From 2001 through 2012, Accenture cut global applications by 59 percent and local applications by 83 percent. The company also lowered its IT costs by outsourcing application development, maintenance and infrastructure services.
Accenture is not unique. By virtualizing its data centers and replacing local homegrown systems with SAP and Oracle modules, Dell reduced the maintenance slice of the IT budget pie to 48 percent and saved $2 billion in IT expenses over five years. State Street projects between $575 million and $625 million in savings from its business operations and IT transformation program, which includes transferring some business applications to a private cloud. It has saved $198 million as of December 30, 2012.
Support an overhaul of a company’s business processes. Ford Motor Co.’s One IT initiative supported the company’s One Ford program to make the carmaker a truly global organization with one set of global processes, systems and products. For example, Ford unified regional purchasing systems and databases into a single system that connects employees with suppliers worldwide.
Operational transformation also drove State Street’s IT overhaul. One goal, pushed by the company’s increasingly global customers and the stresses of the 2008 crash on the financial sector, was to put global solutions in place more quickly. “We needed to run faster,” says Perretta. “Speed is about reuse, working the right projects and being able to reuse people easily. Those three things are built into the new model.”