Downturn opportunity: IT costs and complexity reduction
Today I want to sum up a McKinsey Quarterly article, which describes how to reduce IT costs and complexity in 3 steps.
The IT architecture of a company can be seen as formal description of its business operations, business applications, databases as well as the equipment that run the applications. As the IT architecture is growing organically over the years, it is hard to control. In almost every established enterprise you can find duplicated systems, inconsistent data and provisional (data and application) integration. IT initiatives are often driven by short-term needs, not by a long-term blueprint.
Time to clean up this mess! Especially now, in times of the economic crises, it’s a unique opportunity to reduce IT costs and boost business agility significantly. It’s time for a clearly defined IT blueprint with organization-wide guidelines for the most appropriate and efficient systems and processes.
Business leaders must evaluate the business requirements and processes that underlie the existing architecture and then explore more efficient alternatives. For minimal disruptions and maximal benefits, the article suggests a three-phase approach.
Phase 1: Immediate Cleanup
The first phase should have a length of three to nine month. The team’s task is to generate quick wins through cost reductions by rationalizing software licenses, canceling noncompliant projects and decommissioning little- or never-used applications.
The savings in the first phase are not that high, but they are important to keep the management on track for the next steps.
Phase 2: Reducing Complexity
The second phase should have a length of six to twelve month. In this time the team decides if existing IT applications and system are really needed in future. The following methods are used to reduce complexity:
- Enforce out-of-the-box solutions
- Reuse existing components
- Consolidate databases
- Standardize technologies
- Reduce interface complexity
- Consolidate systems that do similar things
When IT and business managers analyze different opportunities, they must keep an eye on the trade-offs between short-term benefits for business units and long term costs for the entire company.
Phase 3: Business Innovation
The third phase should have a length of at least one year. In this most ambitious phase companies must consider transforming or even completely reinventing themselves. IT can play a major role in implementing big changes in the way companies run their business by supporting strategic innovation. Therefore, the IT must assess alternate operating models and shape the future with new solutions, for example using the Internet for online collaboration among employees or product innovation with help of customers and suppliers. New tools and processes can help to find profitable niches in declining markets and increase productivity.
The answer to the current economic situation is not only IT costs reduction. The answer is also IT complexity reduction, which leads to improved agility, greater flexibility, faster times to market, more efficient and effective business processes as well as faster growth once the turnaround begins.





